Capex reserve
Capex is the periodic large-spend categories that don't repeat annually: roofs, water heaters, parking lot resurfacing, unit turnovers, plumbing risers. A reserve sets aside money each year so the cash is there when the work is needed. Sellers with no capex reserve in their P&L often produce optimistic NOI.
Capital expenditures, almost always shortened to "capex," are the long-cycle large-dollar maintenance items on a multifamily property. They're distinct from regular repairs (which are operating expenses) because they happen on a multi-year cycle and they typically replace a major component rather than just fix a problem.
What counts as capex
The most common categories on multifamily:
- Roofs. Typically 20-25 year lifespans. A roof replacement on a 24-unit building can run $80K-$200K depending on construction.
- Water heaters. 8-12 year lifespan, $1,500-$3,500 per unit installed.
- HVAC. 12-20 year lifespan, $5,000-$10,000 per unit.
- Parking lots. Resurfacing every 7-10 years, full replacement every 25-30. Can run $30K-$100K+ on a multi-unit property.
- Unit interior turnovers. Flooring, paint, fixtures, occasional kitchen and bath. $3,000-$15,000 per unit depending on scope.
- Plumbing risers and main lines. Multi-decade lifespan, expensive when they fail. $20K-$100K+ on older buildings.
- Exterior siding, windows, paint. 15-25 year cycles.
Why the capex reserve line matters
Many seller-provided P&Ls show no capex line at all. The reasoning: capex doesn't happen every year, so it's not an "operating" expense. Technically true. Practically misleading.
A new owner WILL spend on capex over the hold period. Whether you account for it as a reserve or as a one-time hit when it happens, the cash leaves the bank. An underwriting model that ignores capex produces inflated NOI, inflated valuations, and disappointed buyers.
Realistic multifamily capex reserves typically run $250-$400 per unit per year for stabilized B/C class buildings, more for older or value-add buildings, less for newer A-class.
How Kallpa underwrites capex
We separate two questions:
- Annual capex reserve. A budgeted set-aside for the routine cycles (turnovers, water heaters, ongoing maintenance). We use $300-$500 per unit per year as a starting point depending on building age and condition.
- Backlog capex. What the building specifically needs in the first 12-24 months that hasn't been done. Roof at end of life, parking lot needing resurface, plumbing repairs, etc. We model this as a one-time hit and price it into our offer.
If the building has a $200K roof at end of life and a $50K parking lot needing resurface, our offer reflects $250K of capex hitting in the next 18 months. We share the breakdown so you can see the math. If you've got a different read on a line (the roof has 5 more years; the parking lot was resurfaced two years ago), we work through it.
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