CapEx vs maintenance: two different reserves, not one

Maintenance keeps things working: a leak fixed, a furnace serviced. Capital expenditure replaces something that has worn out or adds something that lasts for years, such as a roof or a heating system. Both cost money every year on average, and that is where the confusion starts, because they behave nothing alike.

Maintenance is steady and small. CapEx is rare and large, which is exactly why it gets left out of a cash flow estimate that looks fine every month until the roof goes.

If repairs and replacements share one line, a quiet year makes the line look too big and you cut it, and then the replacement arrives with nothing set aside. Kept apart, each one can be judged on its own terms: repairs against what you actually spend, the CapEx reserve against what is installed and how old it is.

The Rental Property Analyzer keeps them apart for that reason: repairs and maintenance at 8% of the rent collected, a CapEx reserve at 6%, each one its own line in Setup. The Landlord Income & Expense Tracker does the same in the record of what you actually spent, with repairs and maintenance as two of its twelve categories.

Nothing here is sent anywhere and nothing is stored. The component costs and lifespans loaded here are made-up figures that show the arithmetic, not estimates for any building; replace them with quotes and the ages of what is actually installed. The rent is Maple Street Duplex's $3,200 after 5% vacancy, and 6% is the reserve the Rental Property Analyzer starts with.

A percentage of rent is the quick way to size the reserve, and it has a blind spot the file itself points out: a roof costs about the same in a cheap market as in an expensive one, but rents do not. Where rents are high, a percentage can set aside more than the building needs. Where they are low, it can be far too little.

The component method works from the other end. List what will need replacing, what each one costs and how many years it has left, and the monthly reserve is the cost divided by the months. With the figures loaded above the components call for $216.67 a month against $182.40 from a 6% reserve, which is the gap the calculator shows.

For taxes, a repair and an improvement are not treated the same way: repairs are generally deducted in the year you pay them, while improvements are generally depreciated over several years. Where the line falls for a particular bill is a question for whoever prepares your return, and keeping the two apart in your records is what lets them answer it. This page is not tax advice.

The Rental Property Analyzer carries repairs and the CapEx reserve as separate lines for one property with up to eight units, and tests them in a downside scenario where costs run over. The Landlord Income & Expense Tracker records what you actually spent, in twelve fixed categories.