Owning a rental property can be a great investment, but one of the biggest risks to your money is the cost of repairs and maintenance. As a rental property owner, how should you budget for maintenance? I’ll answer your questions, and possibly give you some other insights you might not have thought about.
First things first, if you don’t understand why you need to budget and save, you simply won’t, and that can be a big problem. There are fewer things more detrimental to investors than unexpected repairs and unforeseen hits to the budget. If you have a budget, meaning you physically put the money in a specific account, you can be prepared when the inevitable repairs come due. The annual tracking of these expenses can be extremely helpful when you are projecting future income and expenses. Now that you understand that, we can get into some recommendations to start the budgeting process.
Some investors use a rule of thumb, such as 1%, $1/sqft, or a percentage of the monthly revenue. These may vary depending on your local market, home values, and home condition.
Let’s break some of these down so you can see how they work in real time:
“1% of your properties value” rule: If your property is worth around $300,000, you should budget $3,000 annually for repairs.
“$1/sqft” rule: If the rental space is 2000 square feet, then you should budget $2,000 annually for repairs.
“5-10% of gross rent income” rule: If you make $20,000 gross income from rent, you should budget $2000 annually for repairs.
These are a great starting point but will need to be refined for many different reasons. If your property is brand new, your maintenance and repairs would most likely be much lower than if the property is a 1950s original home. If the home has been recently purchased, you may want to budget more conservatively simply because there is much you don’t know about the home at this point. The cost of labor and materials is another factor that may affect the amount you should be budgeting monthly.