A capital replacement plan lists all the major building components, such as windows, doors, siding, roofs, heating systems, and flooring, and provides an estimate for the remaining useful life of the components, and their replacement cost. With this information, an organization can calculate how much to set aside in annual reserves to meet future repair and replacement needs.

A capital replacement plan is not a maintenance plan. A maintenance plan is also a useful tool, but it focuses on yearly maintenance items, such as painting, cleaning, minor building repairs and upkeep, rather than on the replacement or repair of major building components.

Free CRP Planning Tools

If you are looking to prepare a capital replacement plan, CMHC can help.

Get our Free CRP Manual (PDF)

The manual will be useful to all housing providers who are undertaking capital replacement planning. The manual can be used as a stand-alone document or in conjunction with CRPS and the CRP-Simplified Spreadsheet.

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:

Fewer surprises

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.

Cost savings

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.

Better marketability

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.

Transcript

00:04 Diane is the part-time property manager

00:07 for a housing organization which owns 20

00:09 units it's a charming group of homes

00:12 that blend perfectly into the

00:13 neighborhood but Diane is worried about

00:16 the age of the buildings and the

00:18 inevitable need to replace major items

00:20 like windows toilets and before long Oh

00:23 Ruth when will this need to be replaced

00:26 and how will it be paid for Dianne

00:31 searches online and finds information

00:34 about capital replacement planning on

00:35 the Canada Mortgage and Housing

00:36 Corporation website the site has useful

00:40 tools like software a simplified

00:42 spreadsheet Emmanuel and a workbook the

00:46 tools help her to plan future capital

00:48 replacements and repairs to any major

00:50 building component a capital replacement

00:53 plan is just what she needs with these

00:56 tools Diane can organize her information

00:58 lists all the major components see when

01:01 they will be required and how much they

01:03 will cost and then she'll know how much

01:06 to set aside each ear to pay for them

01:09 Diane looked at previous invoices talk

01:12 to her maintenance manager and met with

01:14 a building inspector then she hired an

01:17 engineer for the more complicated

01:18 mechanical components like the heating

01:21 and electrical systems CMHC's software

01:24 already lists major building components

01:27 Diane enters the total life of each item

01:30 how many years are left until

01:32 replacement and how much it costs to

01:34 replace each item today it even has

01:36 inflation rates to calculate future

01:38 costs now that all of our costs are in

01:41 place Diane can see what her

01:43 expenditures should be each year for the

01:45 next ten years she can also see her cash

01:48 flow for each year going forward Wow by

01:52 year seven the roof windows and the

01:54 boiler will need to be replaced good

01:57 thing she has a plan

01:59 now she is ready to get the plan

02:01 approved by her housing board so she can

02:03 put it in action

02:13 Diane implemented the approved capital

02:16 replacement plan money was set aside so

02:18 that the work took place before problems

02:20 arose she got several estimates and

02:23 negotiated a better price than she would

02:25 have been an emergency since she didn't

02:27 wait till the last minute she didn't

02:29 have extra costs for additional problems

02:31 like water damage from leaking roofs and

02:33 windows the housing organization earned

02:36 interest on the reserve fund so when the

02:38 time came for the repairs it had grown

02:40 in value and they didn't have to borrow

02:42 and pay interest on a loan and now that

02:46 there's a thorough plan Diane reviews it

02:48 every two to three years to keep it up

02:50 to date not only did I am safer housing

02:53 organizations some money she no longer

02:55 worries because having a sound capital

02:58 replacement plan means a more

03:00 predictable financial future

03:08 you

Date Published: March 31, 2018