Capital Reserve and Capital Expenditures Double Counting?

  • Anonymous
    Inactive
    6 years, 8 months ago #2728

    Hi, apologies in advance if I am missing something and thank you for creating this wonderful model!

    I’m trying to understand the Cash Flow from Operations line of the Property CF tab and what goes into it. In particular, I’m confused on the Capital Expenditures total calculation. On the ORI-OpSt tab under Capital Expenditures, there are lines for both capital expenses, e.g. Tenant Improvements, as well as a line for Capital Reserve. Let’s say I reserve $1,000 each month under Capital Reserve. So this is coming out of my cash flow for each month.

    Now let’s say I have a $5,000 Tenant Improvement expense in month 6 so I record that expense as well as $5,000. But I paid for this expense using my reserves. However my cash flow in Month 6 shows a total of $10k in expenses: $1,000 per month in Capital Reserve and $5,000 in Month 6 for the Tenant Improvement. In other words, it’s double dipping on the expense.

    Can you explain where my reasoning is wrong here?

    Thank you!!
    Kim

    Spencer Burton
    Keymaster
    6 years, 8 months ago #3270

    Hi Kim,

    Great question! First let me point out that the nomenclature of the operating statement can be changed on the MF-Settings and ORI-Settings tab in case you want to use a different label than Capital Reserve, or any other.

    With that said, I use Capital Reserve to refer to capital expenditures necessary to maintain the market condition of the property – exclusive of any leasing-related capital expenditures or property improvements. So Capital Reserve would address costs such as installing a new roof, repainting the building’s exterior, repaving the parking lot, etc.

    Hope that helps!

    Spencer

    Anonymous
    Inactive
    6 years, 7 months ago #3272

    Hi Spencer,

    Yes it does help! Sorry for the delay, I had our son on 8/21. 🙂 Nothing like trying to underwrite deals with a newborn to “help out”. On that topic of underwriting, I’m trying to complete your model now for the first time to underwrite a deal, and I see that a tutorial on the Operating Statement tab was alluded to in your posts, but I can’t actually find a tutorial on completing the operating statement tab. It’s looking pretty self-explanatory so far, but if there’s a tutorial I’m missing, maybe someone can point me to it?

    Thanks!
    kim

    Spencer Burton
    Keymaster
    6 years, 7 months ago #3274

    I’ve done a couple of tutorials that indirectly touch on the Operating Statement (OpSt tabs) tabs. If you haven’t already, check out:

    https://www.adventuresincre.com/tenth-walkthrough-office-value-add/

    and

    https://www.adventuresincre.com/sixth-walkthrough-apartment-acquisition/

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