Capital Expenditure (CapEx)

Capital expenditures buy things that last years, like a roof, a furnace or a new kitchen, as opposed to routine repairs. The BRRRR rehab is one large capital expenditure, and a reserve for future ones is part of the rental budget after the refinance.

The rehab spending adds to the property's cost basis and, if the work is good, to the after-repair value. On the default deal, $60,000 of work helps move the house from a $300,000 purchase to a $500,000 appraisal.

After the refinance, the default budget sets aside 5% of rent, or $220 a month, for future capital items. A thorough rehab lowers that need for the first several years, which is one reason BRRRR investors often replace aging systems during the renovation instead of waiting.

Further reading: Capital Expenditure (CapEx) on Wikipedia.