Maintenance Expenses: How Much To Budget For A Rental Property?
One of the most recognized benefits of being a landlord is collecting rent every month, earning passive income, and enjoying the fact that your renter is paying off your mortgage. However, often overlooked are the expenses behind owning a home, along with how much effort and resources are needed to keep it in neat condition for your current and future residents.
Properties deteriorate over time, especially with tenants, and need to be consistently maintained to keep them in neat and livable condition. From cracked floors, scuffs on the walls, and moisture damage, to faded paint, dated systems or fixtures, and even broken appliances.
Maintaining a house in top shape requires investing in repairs and upgrades. In this article, we’ll go over the usual expenses related to maintaining a rental property in excellent condition. By learning these, you’ll be able to prepare for them before they happen so that your property will continuously attract tenants of the highest quality and keep vacancies to a minimum.
Why It’s Important To Invest In Property Maintenance
Timely maintenance and upkeep is the secret behind appreciation, building equity, and ultimately generational wealth in real estate. This includes preparing your home for rent, promptly handling maintenance requests from current tenants, and taking care of deferred maintenance.
By effectively preparing for property maintenance expenses, you’re more likely to find and keep responsible tenants willing to pay a fair market value rental rate. This allows you to generate a sustainable income stream, can reduce your vacancy periods, and protects the value of your asset over time.
However, the opposite also rings true. Neglecting maintenance on your rental property can contribute to higher vacancies and turn-over, make-ready costs, and a deterioration of your asset’s value if and when you decide to sell it. This can also lead to expensive repairs that could have been more affordable. Neglecting to service your HVAC system, for example, can shave years off the life of the system, and could cost you dearly if that system needs to be replaced. These costs can leave you with no rental income for months at a time, wash away any profits you would have enjoyed, and could mean operating at a loss for that fiscal year.
Happy tenants whose problems are taken care of quickly are more likely to settle into your rental property thanks to the comfort and quality of life that you bring to them as their landlord. Plus, they’re less likely to object to increases in rent year-over-year. Unhappy tenants, on the other hand, won’t stay and renew their lease if they don’t feel as comfortable, maintenance items aren’t handled properly and quickly, and they believe the landlord is disinterested in keeping up with repairs.
For that reason, saving roughly 5% to 10% of your gross monthly rent income, and setting aside maintenance and capital expenditure contingency funds, will help you be better prepared as a landlord who inevitably will need to make repairs on any property.
How To Prepare For Maintenance Costs
Some rental property expenses can be unpredictable and hard to prepare for. Hence, you must be financially responsible with the income you generate so expenses don’t become an unexpected burden.
A common rule of thumb is that, on average, you save roughly 5% to 10% of gross rent collected for a maintenance contingency fund, depending on the age of the home and systems. This means that if your home is rented for $1,500 per month, you should prepare to put aside anywhere between $75 to $150 per month to maintain the property.
We recommend that you have a maintenance contingency plan and fund at all times, held in a savings or checking account. Try to save 10% of the income you make every month and continue to fund this maintenance contingency account indefinitely.
If the property is newer or recently renovated, and you’re blessed with little to no maintenance any given year, try not to burn through the money! Instead, consider using it on improvements that would add value to the property, and allow you to command a higher rental rate or future sales price. This can also help you stay ahead of the curve, be competitive in the market, and offer quality homes for your tenants. At the very least, continue to save those funds for the inevitable rainy day, when a roof starts leaking, and subsequently needs to be repaired or replaced.
Categories of Maintenance Costs
Maintenance on your rental property can be split into several categories. We’ll go over each of them so it’s easier for you to grasp their pecking order and significance.
Make-Ready Costs
First up are the make-ready costs. These involve fixing defects and lingering issues left after the previous tenant’s leave and anything that needs to be taken care of to make the property suitable and ready to rent again.
When Keyrenter is tasked with a make-ready, our first step is to complete a move-out (or initial) inspection of your property and ensure that the work we do brings your property to the level of our Minimum Property Standards, which follow the Federal guidelines of Housing Quality Standards (HQS). Our team inspects the functionality of plumbing, electrical, HVAC, appliances, and more to ensure your tenants have the best possible experience at the time they move in.
To become familiar with everything that could cost you money, we suggest you check out our Minimum Property Standards list. This is especially true if your home is vacant and you’re searching for new tenants, and considering working with any property management company, as it helps align expectations and avoid confusion regarding what needs to be done to the property to bring it to a move-in or rent-ready condition.
Ongoing and Ad Hoc Maintenance Expenses
Next are the ongoing maintenance costs. These include repairs to flooring (such as cracks, uneven floors, and loose flooring), walls (cracks, stains, loose plaster, and damp patches), pest control (organic, chemical, biological, or electronic), and more.
Ongoing costs cover aspects that have a great impact on your residents’ daily life, their well-being, and their quiet enjoyment of the property. Hence, you must tackle these as soon as possible to not upset tenants and give them reasons to move out.
A fresh coat of paint and landscaping are other forms of ongoing costs. These are especially important when a property is vacant since they represent a fairly low upfront investment, yet do wonders in raising the curb appeal and attractiveness of your house.
Lastly, make sure all cabinets and countertops stay spotless, showing no evident signs of wear and tear. Bathroom and kitchen upgrades represent some of the highest-value areas to invest in since those are the ones tenants heavily utilize daily, so we advise you to pay close attention to them when deciding on your next project.
Deferred Maintenance
Deferred maintenance covers areas of a home that may not be an immediate priority or those that face budget limitations. These can range from exterior paint, brick, and siding, to foundation repairs and more. Also, this commonly includes old built-in appliances such as ovens or refrigerators, old worn-out carpets, fixtures such as ceiling fans; blinds or shutters mounted on the window frames; and doorknobs or old locking mechanisms.
You must not delay deferred maintenance more than necessary, as costs can increase over time due to deterioration, or additional, or excessive damage. For example, in the case of foundation repairs (which are highly expensive), leaving them unattended can cause additional sliding or permanent damage to floors, walls, and door frames, and put your property (and tenants) in danger.
Forced Appreciation and Value-Add Improvements
The final category of rental property expenses that you should pay close attention to are those improvements that force appreciation and add value. Rather than actual costs, these are upgrades that increase the value of your home directly and ultimately justify higher rent when signing or renewing a lease agreement.
Examples of this are energy-efficient improvements, improving curb appeal by replacing or painting an old garage door, landscaping and outdoor functional spaces, and of course, investing in those kitchens and bathrooms. Depending on your zoning laws, the difficulty to obtain permits, construction costs, and the land you have to work with, some owners opt to build an additional dwelling unit (ADU) and rent it separately, or include it with the main house and increase the price.
How Much Should You Budget For Home Maintenance?
Annual maintenance costs of course vary from property to property, depending on what your starting point is, and the age of systems, fixtures, appliances, and more. With that in mind, it would behoove owners of rental properties to estimate what their monthly savings of gross rents collected should be allocated to their maintenance contingency fund. Suppose you want to take a cautious approach and be aggressive with your savings. In that case, we suggest you set aside 30% of your rental income (after paying your monthly mortgage payment, if any) for repairs and maintenance costs related to your property.
While investing in your home does mean you’ll keep a smaller piece of the rent pie as net income, every dollar spent on your property’s condition will maintain or increase its market value. It also justifies annual rent increases, improves your returns, and allows you to avoid turn-over or make-ready costs that erode profits in the form of vacancy, marketing expenses, cleaning, and repairs.
Finding, qualifying, and placing a high-quality tenant often requires good systems, processes, and experience. Not to mention trusted vendors who are licensed, bonded, and insured; can repair any issue, in a timely fashion, and act professionally with your tenants. For those reasons, relying on the services of a professional property manager can save you time, money, and headaches.
Keyrenter is known as the same-day property manager! We notify the owners and make every effort to handle tenant maintenance requests in real-time and on the same day. Our job is to give landlords their time and energy back while saving them money and allowing them to enjoy a truly passive income stream from their real estate investments.
Our maintenance rates vary by market, and with years of experience dealing with tenant requests on a day-to-day basis, and an extensive network of known and trusted professional vendors, we offer competitive pricing to our clients. If you’re interested in our services and in finding out what sets us apart in our industry, or to learn more about our maintenance rates, you can email us at [email protected].
FAQ
Q1. How Much Should I Save For Home Maintenance?
A: You should save roughly 5% to 10% of the gross rent collected for a maintenance contingency fund, depending on the age of the home and systems. If you want to be more aggressive, we suggest you keep 10% of your net rental income in a savings account to cover emergency expenses, value-added improvements, and 12 months of rent income.
Q2. Why Is Property Maintenance So Important?
A: Property maintenance is important because it’s what preserves your home’s market value and keeps your tenants in your property for a long time. By taking care of your property’s maintenance needs, you’ll attract high-quality tenants and reduce your vacancy periods. Most importantly, investing in your property justifies an annual rent hike.