Deep Dive on Capex Cost
The taxman allows for 1/27.5 depreciation of the property improvements price per year. In fact, walls can hold much longer, whereas roof, HVAC, water boiler and electrical panel have a long but limited life.
Here is a Biggerpocket.com article that suggest an annualized capex cost of $3000 (or $250 per month) including long terms parts and appliances/carpet/paint which have much higher churn rate.
This other article mentions a $182 per month charge. Here is an alternative cost breakdown, separating rarer big-ticket items, and things that need replacement/maintenance routinely, such as appliances, carpet and paint.
In the sections below, we detail roof, HVAC, Ktichen, Windows and Doors and electrical panel, which sum up to $81 per month only. we advise any buyer to check the condition of these items as those are the bigger tickets.
In short, 6k for shingle replacement with 30Y architectural shingles on a 1200sqf house. This corresponds to $200 per year.
In short, it cost 8k-12k every 20 years. This corresponds to $500 per year.
As it is a major cost, you can dive deeper into the capex maintenance cost of properties by checking out the price of HVAC.
To get estimates of full HVAC replacement cost, you can follow this link
First, you need to determine what tonnage is right for a given house. You can use the approximate formula T=(sqf/300-1). For more details, follow this link
Then, you need to check the BTU required.
The cost varies between a full replacement with redoing of the ductwork vs HVAC unit replacement.
kitchen cabinets and countertop cost $4000 to change every 20 years or $200 per year
- costs $600 per door, costs $200 per window, or $5800 for a house, to be changed every 30 years, or 20$ per year
- costs $400, Change every 40 years or $10 per year
Sum of Parts
Looking at the parts:
- HVAC: 500
- Roof: 200
- Doors and Windows: 20
- Electrical 10
- Kitchen cabinet and countertop 250
That's 980$ per year or $81 per month. This cost is much higher as faucets and switches will need to be changed. I am considering paint and carpet change as repairs (unless one wishes to keep carpet for 25Y).
Conversely, it costs $80/sqf to build a house or $96,0000 for a 1200sqf house, amortizing it in 27.5 years leads to $290 depreciation per month. But that is amortizing walls and drywall that may not need any work.
In conclusion, a capex reserve of at least $80 to $120 per month is needed for a house. Other sources predict $180 to $250 per month but the latter estimates include turn costs such as carpet and paint. It is better to take a higher reserve for an older house. The IRS depreciation assumption appears generous for houses priced above 90k and insufficient below..
Note that I consider appliances (change every 10Y), flooring and paint (change every 5Y) to be part of the tenant turn expenses.
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