What is CapEx in Real Estate? Why Smart Investors (& Homeowners) Plan for It
If you're a new real estate investor, you've probably heard the term CapEx tossed around. It stands for Capital Expenditures, and while it may sound technical, it’s a critical concept to understand if you want to build a successful rental property portfolio. In simple terms, CapEx is money you spend on big-ticket repairs or improvements that add long-term value to your property. These aren’t your everyday maintenance tasks, they're the larger projects that come up occasionally but can seriously impact your bottom line if you’re not prepared. Let’s break down what CapEx really is, what to expect, and how to plan ahead.
What is CapEx in Real Estate?
CapEx refers to major expenses you make to improve or extend the life of a property. These are not things like fixing a leaky faucet or paying the water bill. Instead, CapEx projects are things like:
- Replacing the roof
- Installing a new HVAC system
- Updating the electrical or plumbing
- Replacing windows
- Paving the driveway
- Remodeling a kitchen or bathroom
- These costs typically come up every few years (not every month), but when they do, they can be expensive, often thousands of dollars.
Why You Need to Save for CapEx
If you're collecting rent and calculating profits, it’s easy to forget that some of that money needs to be set aside for the future. But here’s why setting aside money for CapEx is so important:
- CapEx is Inevitable - No property stays in perfect shape forever. Roofs age, furnaces fail, and tenants can be hard on appliances. These costs will happen, it’s just a matter of when.
- Protect Your Cash Flow - Imagine getting a $6,000 bill to replace a roof with no savings to cover it. Without planning, these expenses can throw your finances into chaos or force you to take on debt.
- Preserve Your Property Value - Regularly investing in your property keeps it attractive, functional, and competitive in the market, leading to better tenants, fewer vacancies, and potentially higher rents.
Common CapEx Items and Estimated Costs
Here are some typical CapEx items you might face as a landlord, along with ballpark cost ranges:
Note: Costs vary depending on location, property size, and contractor pricing.
How to Budget for CapEx
A common rule of thumb is to set aside 5% to 10% of your monthly rental income for future CapEx. So if your property rents for $2,000/month, aim to save $100–$200 each month in a separate CapEx reserve account. Some investors go even further and create a CapEx schedule, estimating when each item will likely need replacement and how much it will cost. That way, you can plan several years ahead and avoid surprises.
What Happens If You Don’t Plan?
Not budgeting for CapEx is one of the top mistakes new investors make. Here’s what can happen if you ignore it:
- You may have to delay repairs, leading to property damage or unhappy tenants.
- You might be forced to take on high-interest debt to cover emergency expenses.
- You could see your property value and rental income drop because the home isn’t being maintained.
- Worst of all, these issues can compound, turning a profitable investment into a money pit.
Final Thoughts
CapEx may not be the most exciting part of real estate investing or homeownership, but it’s one of the most important. The good news? Planning ahead puts you in control. When you set aside money for big repairs, you can handle them calmly and confidently, without scrambling or stressing. So, as you grow your portfolio, treat CapEx as a necessary investment in your investment. Your future self and your properties will thank you. Reach out to The Glover Team today to start your real estate journey.
