A capital expenditure (CapEx) budget, sometimes called a capital improvement plan, is a forward-looking schedule of major spending a property is expected to require beyond routine operating expenses. It typically covers items with a useful life of several years or more, such as roof replacements, elevator modernization, parking lot resurfacing, or major unit renovations. Unlike operating expenses, which recur monthly and are paid from cash flow, capital expenditures are usually funded from reserves, refinancing proceeds, or investor capital set aside at acquisition.
Sponsors build a CapEx budget during underwriting by walking the property, reviewing engineering reports, and estimating the timing and cost of each anticipated project across the hold period. A well-constructed budget protects investor returns by avoiding surprise assessments and by supporting the business plan, whether that plan involves light cosmetic upgrades or a full repositioning. Investors reviewing a deal should compare the projected CapEx budget against the property's condition and age, since an unrealistically low figure can understate risk and overstate projected returns.
Further reading: Real Estate Investment Strategies for Accredited Investors in 2026
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