A capital replacement plan lists all the major building components, such as:
- heating systems
It also 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.
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The manual will be useful to all housing providers who are undertaking capital replacement planning.
Why make a capital replacement plan?
Planning for major repairs and replacements is a housing management best practice, and there are several benefits, such as:
A building has many items that will inevitably need to be replaced. Without a plan, housing organizations can be unprepared for urgent replacements. Unbudgeted capital costs may lead to borrowing expenses. A capital replacement plan accurately predicts necessary repairs or replacements, helping avoid these surprises.
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: this can result in better quotes and lower prices.
- Reduced borrowing costs due to planned annual savings: this allows organizations to fully pay for repairs from reserves or secure smaller loans. Annual savings could generate interest income if invested.
- Lower maintenance costs: by replacing building components before they fail. Newer components typically require less maintenance.
Older windows, roofs and floors can make it harder to rent units, resulting in higher vacancies and turnover rates. This can lead to less revenue for capital improvements.
Housing organizations can adopt a systematic and financially controlled approach by using a capital replacement plan. This can result in benefits such as:
- fewer vacancies
- lower turnover
- less negative feedback from tenants about possible increases in housing charges