Are you wanting to get into the real estate game but don't know any of the lingo? Parse through this plethora of lessons where you will learn the meaning and specific application of dozens of real estate terms taught by the incredibly successful Michael Burer.
Featured Coaching Excerpt - Notes & Transcript, Part 1
Lesson Nugget: Capital expenditures are improvements made to the building as opposed to an expense for maintaining the building.
Capital Expenditures: Property improvements that cannot be expensed as a current operating expense for tax purposes. Examples include a new roof, tenant improvements, or a parking lot–such items are added to the basis of the property and then can be depreciated over the holding period. Distinguished from cash outflows for expense items such as new paint or plumbing (operating expenses) that can be expensed in the year they occur.
capital expenditures video on Thrive15.com, an alternative to lynda.com
-All right, we are joined here in sunny San Diego on Thrive15.com, an alternative to lynda.com , where we could really be out riding a Banana Boat right now, but instead we have chosen to be here with Michael "no real estate topic is too obscure" Burer to talk about this little thing called capital expenditures. Now, I'm going to read the definition, and when I finish reading the definition, I'm going to ask this guy to go ahead and give us an ample example that my mind can handle. So here we go.
"Property improvements that cannot be expensed as a current operating expense for tax purposes. Examples include a new roof, tenant improvements, or a parking lot-- and such items are added to the basis of the property and then can be depreciated over the holding period. Distinguished from cash outflows for expense items such as new paint or plumbing that can be expensed in the year they occur."
What did I just say? What does that mean? What's an ample example of what capital expenditures are?
-So capital expenditures are improvements to the building rather than just reoccurring maintenance. So for example, if you put a new roof on or you put a whole new air-conditioning system into a building, that would be a capital improvement to the project. Versus if you just have the HVAC tech come out and service the air-conditioning, that would just be an expense that you would immediately write off.
-OK. So here's an example, my air-conditioning, you're saying HVAC, stops working. I'm like, this is-- it's hot in here. I did that at the Thrive set this year. I think we spent, like-- it a little bit reminded me of kind of like a gangsta rap record label-- we spent about 30 Gs on it. Like, 30 Gs on the roof. It was very, very gangsta rap-sh who many Gs we spent there.
But anyway, we spent a bunch of money and we fixed it, and when we got done it was exactly the same way it should have been. We didn't improve it. It wasn't any colder.
-But you put a whole new system?
-A whole new system. Does that count as an expenditure?
-Yep. That would be a capital expenditure.
OK. Let's do another one here. Years ago I'm in the office, and it's raining. Raining. I'm noticing rain coming in. Rain. And I'm going, rain shouldn't be in. I'm in the office. Rain's coming in.
-Fries the computer. Replace the computer. Is that a capital expenditure?
-Well, the new computer would be a capital expenditure. If you just patched in-- talking about the roof-- if you just patched those holes in the room, that would be an expense. But if you put a whole new roof on, that would be a capital expense.
-Yeah. I just patched.
-I'm the kind of guy that's just going to patch. I'm going to patch that roof until it's thatched.
-Just an expense.
-All right. Well, Micheal, I appreciate you being here. Really more than words can express, and I just want to confess that you are a beautiful man.