What Are CapEx Projects?
CapEx projects, short for capital expenditure projects, are major investments used to upgrade, restore or maintain a property’s physical, operational or technological assets. Due to this broad definition, CapEx projects vary greatly based on a property’ size, age, use and needs. To illustrate further, here are some common CapEx projects:
- LED lighting retrofits/upgrades
- Roof replacements or major repairs
- HVAC equipment upgrades
- Re-piping an entire property
- Exterior restoration (concrete, masonry, siding, etc.)
- Installing or upgrading building controls
While it would be impossible to list every type of CapEx project, this list provides solid example answers to the question,”what are CapEx Projects?”. Click here to see even more examples of CapEx projects for commercial properties.
CapEx Projects vs. Repairs
Although there are many types of CapEx projects, not all projects can be considered capital expenditures. This is because CapEx projects must meet additional criteria and requirements. Otherwise a project is considered a repair. The most important of these requirements include:
- Upgrades a property’s physical or technological assets
- Increases the property’s useful life, efficiency, and/or capacity
- Restores the property to a like new condition
- Converts the property to a new operational use
To illustrate further, consider Property A and Property B which both suffer from bad roof leaks. To address the issue, Property A spends $50,000 to patch the leaks. Meanwhile, Property B spends $50,000 to replace the roof. Even though both properties spent $50,000 to stop the roof leaks, only the roof replacement at Property B is a CapEx project. This is because Property A did not replace or restore the roof to a like new issue.
Accounting Requirements for CapEx Projects
Once a project has met the criteria to be considered a capital expenditure, there is a final requirement. Instead of accounting for project costs on the income statement, CapEx projects get reported on the balance sheet as an investment. As a result, costs are depreciated over time, reducing their impact on a properties net operating income in the year they are completed. This post does a great job explaining the accounting behind CapEx projects.
In conclusion, the final answer to our question, “what are CapEx projects?” has a three part answer. First and foremost, CapEx projects are significant investments that upgrade a property’s physical, operational, or technological assets. After that, they must not be repairs. Lastly, they have to be reported on the balance sheet as an investment and depreciated over time.
Find Contractors Using BidSource
Use BidSource to have the Property Manager Insider team connect you with a local contractor for your next CapEx project. All of our contractors have capacity and experience working with property managers. Just fill out the form below with you project details and we will do the rest.