📘 What is Capital Expenditure (CapEx)?

Capital Expenditure (CapEx) refers to the money invested in significant property improvements or upgrades that extend the useful life of an asset. This includes costs like roof replacements, HVAC systems, or new plumbing.

Unlike regular maintenance, CapEx is not recurring and is typically capitalized over time instead of being deducted as an immediate expense.

📌 When and Why It’s Used

CapEx is used when a property requires large-scale repairs, replacements, or upgrades that add long-term value. These expenditures are part of long-term planning and budgeting in real estate investing.

Understanding CapEx helps investors project future cash flow, maintain property value, and make smart reinvestment decisions.

🧮 How It’s Calculated or Applied

CapEx is not a fixed formula but a budgeted estimate based on the age, condition, and expected lifespan of property systems. Investors often set aside reserves monthly or annually to prepare for these larger expenses.

To estimate a monthly CapEx reserve, you can use the following approach:

This helps avoid financial surprises by spreading the cost across time rather than absorbing large expenses all at once.

✅ Pros

• Protects long-term asset value
• Enables better cash flow planning
• Can reduce emergency repairs through proactive upgrades

⚠️ Cons

• High upfront costs can strain finances
• Misestimating CapEx can affect profitability
• Doesn’t provide immediate return on investment