What Are Capital Expenditures (CapEx)?
Answer
Capital expenditures are larger, longer-lived investments in a property (roofs, HVAC, unit renovations, parking) as opposed to routine operating expenses. CapEx is excluded from net operating income but is very real cash, so it must be budgeted and reserved for.
A value-add plan is largely a CapEx plan: targeted renovations that raise rents and value. Because CapEx sits below NOI, a deal can look healthy on NOI yet still need significant capital, which is why reserves and a realistic CapEx budget matter.
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