Capital expenditures, or CapEx for short, are an important aspect of real estate investing that all investors should be familiar with. In this blog post, we’ll go over the ABCs of CapEx, what it is, why it’s important, and how to use it in your real estate investments.
First, let’s define what CapEx is. Capital expenditures refer to any expense that is incurred to improve a property’s long-term value. This can include things like replacing a roof, updating electrical or plumbing systems, or renovating a unit. These expenses are considered capital expenditures because they are expected to provide benefits to the property over a long period of time, typically over a year or more.
So why are CapEx expenses important? One reason is that they can help to increase the value of your property. By investing in capital improvements, you can make your property more attractive to potential tenants and increase your rental income. Additionally, capital expenditures can help to prevent major maintenance issues in the future, which can be much more costly to fix.
When evaluating a potential real estate investment, it’s important to factor in the cost of any necessary capital expenditures. This will help you to determine whether the property is a good investment and whether you can expect to see a return on your investment. To do this, you’ll need to calculate the property’s net operating income (NOI) and subtract the CapEx expenses from it. This will give you the property’s cash flow, which is an important metric for evaluating its potential as an investment.
Here’s a simple example: Let’s say you’re considering purchasing a rental property that generates $100,000 in annual rental income. After factoring in expenses such as property taxes, insurance, and maintenance, the property has an NOI of $70,000. However, you know that the property will require a new roof in the next few years, which will cost approximately $20,000. If you subtract that $20,000 from the NOI, you’ll have a cash flow of $50,000. This will give you a better understanding of the property’s potential as an investment and help you to make a more informed decision.
In summary, capital expenditures are an important consideration for real estate investors. By understanding what CapEx is, why it’s important, and how to calculate it, you can make more informed investment decisions and maximize your returns.
If you’re interested in learning more about real estate investing and how to maximize your returns, contact us today to schedule a call! We’ll help you navigate the world of real estate investing and find the right opportunities to achieve your financial goals
About Jacky Fils:
Who am I? I am a Real Estate Investor & Entrepreneur who happens to be a physician. I have chosen this path after understanding very well the in’s & out’s of above-average return on investment (ROI), backed by a solid asset, Real Estate. I have been actively investing in real estate in the western Massachusetts area for a number of years. My mission is to provide quality housing for quality tenants, while at the same time providing an above-average return on investment (R.O.I) for our investor partners. It is truly a win-win-win way of investing!
Jacky offers his investor partners hands-free investment opportunities. If you are interested to learn how to earn an above-average return on your investment, backed by a solid asset, and without the hassle of being a landlord, please contact Jacky.
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please call 857-800-1237 or visit https://jackyfils.com/