Underwriting Adjustment
CapEx Impact Calculator
See what capital expenditures actually cost you. Annualize CapEx across its useful life, watch the cap rate adjust in real time, and stress-test deferred maintenance scenarios before you sign.
Implied current cap rate appears once both fields are filled.
Each line is annualized by its own lifespan, then summed. Use for buildings with multiple major systems aging on different schedules.
Need the unadjusted cap rate first? Use the Cap Rate Calculator →
Frequently asked
CapEx, plainly explained.
What is capital expenditure (CapEx)?
Capital expenditures are large, infrequent investments in property components that extend useful life or add value. They sit on a different ledger from operating expenses.
Common examples and typical lifespans:
- Roof replacement — 20 to 30 years
- HVAC system — 15 to 20 years
- Parking lot resurfacing — 15 to 25 years
- Façade restoration — 30 to 50 years
- Major plumbing or electrical — 25 to 40 years
- Elevator modernization — 20 to 30 years
What is annualized CapEx?
Annualized CapEx spreads a one-time investment across its useful life so it can be compared to recurring annual income.
Example: a $100,000 roof with a 25-year lifespan creates $4,000 of annualized CapEx. That's the true annual cost the property carries — even if no cash leaves your pocket in years 2 through 24.
This converts a lumpy capital obligation into a smooth annual figure that can be subtracted from NOI.
How does CapEx affect cap rate?
Annualized CapEx reduces NOI, which reduces the effective cap rate. The same property will look very different depending on whether the buyer has accounted for capital reserves.
Worked example: a property with $180,000 NOI valued at $2.5M trades at a 7.20% cap rate. If it needs $300,000 of work over 20 years, that's $15,000 of annualized CapEx. Adjusted NOI becomes $165,000, and the real cap rate is 6.60% — a 60-basis-point haircut.
Why itemize CapEx instead of using one lump sum?
Different building systems age on different schedules. A $80K roof with a 25-year life and a $120K HVAC with a 15-year life don't average out — they need to be annualized separately and summed.
Lumping them into "$200K over 20 years" gives $10,000 annualized. Itemizing properly gives $80K÷25 + $120K÷15 = $11,200 annualized. The difference compounds over a hold period.
What's the difference between CapEx and operating expenses?
- CapEx: Large, infrequent. Replaces or improves a major component. Annualized over its useful life.
- Operating expenses: Recurring. Keep current condition. Hit NOI directly each year.
- A new roof = CapEx. Patching the roof = operating expense.
- For tax purposes, CapEx is typically capitalized and depreciated. Operating expenses are deducted in the year incurred.
How should I plan a CapEx reserve?
- Get a property condition assessment before closing
- Set aside the annualized CapEx number into a dedicated reserve account each month
- Stress-test for surprises — many investors budget 10–25% above their expected CapEx number
- Reassess the schedule annually as systems age
- For older buildings, lender CapEx escrows may be required
What's a reasonable CapEx-to-NOI ratio?
It depends on the asset class and age, but as a rule of thumb:
- Newer Class A buildings: 5–10% of NOI
- Stabilized Class B: 10–15% of NOI
- Older Class C or value-add: 15–25%+ of NOI
If your annualized CapEx is over 20% of NOI, you're underwriting a heavy renovation deal — make sure the going-in basis reflects that.