Capital Expenditure

In real estate, an expenditure with a useful life greater than a year. Referred to colloquially as CapEx, Capital Expenditures are depreciated over their useful life (e.g. 100,000 expenditure with 10 year useful life = 10,000 depreciation each year for 1o years). In contrast, operating expenses are fully depreciated in the year they occur. In real estate modeling, capital expenditures fall below net operating income due to their volatile (sporadic) nature.

Effective gross income minus operating expenses equal net operating income. Net operating income minus capital expenditures equals cash flow from operations.

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