Why Make a Capital Replacement Plan?
Planning for major repairs and replacements is a housing management best practice, and there are a number of benefits, such as:
A building has many items that will inevitably need to be replaced. Without a plan, housing organizations risk being caught by surprise that something needs to be replaced immediately — and if the capital cost has not been budgeted for, borrowing costs would be incurred. A capital replacement plan helps to avoid such surprises by accurately forecasting what repairs or replacements will be needed and when.
Having a capital replacement plan in place will improve the financial viability of a housing project. Some of the financial advantages of planning ahead include:
- more time for a tendering process, resulting in better quotes and lower prices;
- reduced borrowing costs due to planned annual savings that allow an organization to pay for the repair out of the reserve completely or with a smaller loan; it may also be possible to earn interest income by investing the annual savings; and
- lower maintenance costs due to having building components replaced before they fail; also, newer building components generally require less maintenance.
Older windows, roofs and floors can make it harder to rent units, resulting in higher vacancies and turnover rates, and less revenue for capital improvements. With a capital replacement plan in place, the housing project can use a methodical and financially controlled approach, resulting in fewer vacancies, lower turnover, and less negative feedback from tenants about any possible increases in housing charges.
See how other groups used capital replacement planning with positive results: