Glossary
CapEx (capital expenditures)
CapEx (capital expenditures) is money you set aside each month for big replacements later, like a roof, HVAC system or water heater.
Repairs are the small, regular fixes. CapEx is the large stuff that wears out over years. If you do not save for it monthly, it shows up as one large bill that can wipe out years of cash flow.
Lenders do not include capex in DSCR, so a deal can look fine on paper and still leave you short when a system fails. The reserve is for you, not the lender.
How to calculate it
A simple method is a percent of rent. Run The Deal defaults to 5% of rent for long-term rentals, separate from a 5% repairs allowance. A more detailed method lists each big item, its replacement cost and its remaining life.
- Monthly rent
- $2,000
- CapEx reserve (5%)
- $100 a month
- Saved per year
- $1,200
- Assumed roof replacement cost
- $12,000
The roof cost is a placeholder. Get real quotes for your property.
Where it fits
Run The Deal keeps the capex reserve out of NOI and subtracts it in cash flow. Some investors include it in NOI, which lowers the cap rate. Know which way a number was built.
What to watch
- A full rehab that replaces the roof and systems can justify a lower reserve for a while.
- Older houses and houses with original systems need more.
- Short-term rentals wear faster. Furniture and linens need their own budget.
Adjust capex in the rental property calculator and see the effect on cash flow.
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