CapEx Reserve Calculator

What a CapEx Reserve Is

Capital expenditures are the large, infrequent replacements every rental needs: a roof, a furnace, a water heater, flooring. They are different from routine maintenance, and they are the costs most often left out of a cash flow estimate.

A CapEx reserve spreads those costs over time. The formula for each item is: monthly reserve = replacement cost / (years until replacement x 12). Add the items together for the monthly amount to set aside.

Worked Example

With the example figures, a $12,000 roof due in 20 years needs $50 a month and a $7,000 HVAC system due in 12 years needs $49. All six items together come to $211 a month, or $2,533 a year.

On $2,400 rent, that is 8.8% of the rent. A property that looks like it clears $300 a month before CapEx may clear far less once the reserve is counted.

Using Remaining Life, Not Full Life

Enter the years each item has left, not its lifespan when new. A roof with 3 years left needs its full cost saved in 3 years, which changes the answer sharply. An inspection report is the best source for remaining life when you buy.

Percentage Rules of Thumb

Many investors budget a flat 5% to 10% of rent for capital expenses. That is a reasonable first pass, but it ignores the age of the property. Building the reserve item by item shows when a rule of thumb is too low.

Related Calculators

• Rental Property Maintenance Budget Calculator: Budget routine repairs separately from replacements.
• Cash Flow Calculator: Include the reserve in monthly cash flow.
• Net Operating Income Calculator: See income before capital costs and debt.
• Tenant Turnover Cost Calculator: Estimate the make-ready costs between renters.

Frequently Asked Questions

How much should I set aside for CapEx on a rental property?

Add up, for each major item, its replacement cost divided by the months until it is due. A common shortcut is 5% to 10% of rent, with older properties needing more.

What counts as a capital expenditure?

Large replacements and improvements that last for years, such as a roof, HVAC system, water heater, appliances, flooring and exterior work. Routine repairs are maintenance, not CapEx.

What is the difference between CapEx and maintenance?

Maintenance keeps the property running, such as fixing a leak. CapEx replaces a component or extends its life, such as a new roof. They are budgeted separately.

Is CapEx included in net operating income?

Usually not. Net operating income is income minus operating expenses, and capital expenditures are counted after it, which is why a reserve is easy to overlook.