Knowledge Base
CapEx vs. OpEx
CapEx versus OpEx is the accounting distinction between capital expenditures, which buy or extend long-lived assets such as roofs and HVAC systems, and operating expenses, which cover the recurring day-to-day costs of running a property.
How the line is drawn
Operating expenses are recurring costs of running the property: repairs, payroll, utilities, insurance, supplies. Capital expenditures buy or extend long-lived assets: a roof, a boiler, a full HVAC system, a renovation. The practical test is whether the spend restores an asset to working order or materially extends its life. Repairing a compressor is OpEx. Replacing the condensing unit is CapEx. Most owners set a capitalization threshold — a dollar amount below which everything is expensed — and consistency matters more than the exact number.
Why the distinction matters to value
NOI includes OpEx and excludes CapEx, and property value is priced on NOI. Move a recurring repair into CapEx and NOI rises — on paper. Buyers and lenders underwrite against this: an underwriter who finds recurring maintenance hiding in the capital budget will restate NOI downward and reprice the deal. The classification also changes taxes — OpEx is deducted in the year spent, CapEx is depreciated over years — so the same invoice can carry a different after-tax cost depending on where it posts. Because expense treatment flows straight into property value, the line deserves discipline.
Common mistakes
Three patterns recur. First, flattering NOI by capitalizing routine repairs — it works until diligence. Second, inconsistent thresholds across a portfolio, which makes property-to-property comparison meaningless. Third, ignoring price on the OpEx side because individual charges are small: capital projects get bids, while day-to-day R&M purchases often get none, which is where overpayment accumulates. Stilwell's approach concentrates on that unbid OpEx spend — the repairs-and-maintenance invoices — because it is the layer of spend nobody else is pricing.
Related terms
Start with one property and one quarter
Send us a quarter of invoices and we will show you what it should have cost. If there is nothing there, we will tell you that too.
