Author Topic: How to estimate maintenance and capex on new builds  (Read 529 times)

anonmustach3

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How to estimate maintenance and capex on new builds
« on: June 27, 2019, 06:54:22 AM »
In my spreadsheets for evaluating rental properties I have (1% of purchase price / 12) estimated for monthly maintenance and 7% of gross rent for the month put into a capex fund. However, I am looking at some new builds that don't quite meet the 1% rule with those numbers, they're closer to .8%.

Do you estimate the same maintenance and capex for new builds as you would with any other old rental? It seems like that's not very accurate, and while 1% for maintenance may hold true over the long term, is there anything like a 10-15 year initial window on newer constructions where you can budget significantly less? And then after that window you'd need to increase your budget back to "normal" maintenance and capex levels to handle higher costs going forward (although in my models the rents would also be increasing over that decade+).

Curious how other people compare the numbers of new construction to a property that is 20-30 years old or more.

Duke03

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Re: How to estimate maintenance and capex on new builds
« Reply #1 on: July 04, 2019, 02:46:13 PM »
Every new build I've owned and seen has come with either a one or two year warranty that should cover most of the maintenance cost.  Granted they won't replace stained carpet, but that is what a deposit is for.....  The last builder I used gave a 2 year turn key warranty.  They would replace something as small as a light bulb burning out with in the first two years.   It was fabulous.  The only thing I bought was a/c filters.

Papa bear

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Re: How to estimate maintenance and capex on new builds
« Reply #2 on: July 04, 2019, 03:06:04 PM »
Tenants will still do damage on new construction.  Keep that maintenance budget.


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Another Reader

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Re: How to estimate maintenance and capex on new builds
« Reply #3 on: July 04, 2019, 05:54:46 PM »
Capex is really an accrual account for replacements that will be required in the future.  You may not need to replace the AC unit the first year, but you could in year 5 or 6.  Tenants can ruin paint, carpet and appliances at 6 months.  Generally, your capex will be likely be less in the early years, but will be more as the first round of replacements comes up.

Unless rents are rising rapidly in your area, I would assume that 0.8 percent is the rosiest rent to value estimate for the near future.  If the builder keeps producing new homes, your used rental will compete with brand new units bought as rentals under similar assumptions.  Tenants will prefer the new home and that limits your ability to increase the rent.  It also means you will have to keep your property in pristine condition to attract the better tenants.  That in turn means your capex budget will be higher in the early years than it would be if there was no competition from new homes.