If you’re new to real estate investing, you might wonder how to budget for property maintenance properly. After all, your mortgage, interest, and insurance payments aren’t the only costs you will incur as a rental property owner.
Property maintenance is essential aspect of property management. Building property maintenance into your budget helps prepare for unexpected costs.
So, how much should you budget for property maintenance? What property repair costs will it cover? Below are tips to help you create a successful property maintenance budget.
Understanding Maintenance Costs
Any homeowner knows that maintenance costs are just a part of owning a home. This applies whether you live in the home or rent it out.
Regular upkeep is essential to protect your investment and avoid costly repairs. Investing in ongoing property maintenance protects your home, keeps residents happy, and extends its lifespan.
The 1% Rule
Ongoing property maintenance is a key part of successful property management and real estate investing. The challenge is often figuring out how much you should budget for property repairs. This way you have the cash on hand to pay for it, rather than charging it on a credit card.
Don’t worry if you’re new to real estate investing, and don’t have historical information to base your decision on. You can follow a tried-and-true property maintenance rule of home ownership.
It is called the 1% Rule, and it’s a common guideline that suggests setting aside 1% of your property’s value annually for property maintenance. If your home is valued at $200,000, then, you should plan to set aside roughly $2,000 per year for property maintenance costs.
In this example, you can set aside $166.67 per month for property maintenance costs, which makes setting a budget for property repairs much easier.
Capital Expenditures vs. Repairs
It’s also important to understand that there’s a big difference between capital expenditures and repairs. The former includes major replacement such as a new roof or HVAC system. The latter covers ongoing repairs such as fixes to the plumbing system.
Both of these categories are expenses you will incur for property management. But only the repairs are covered under the 1% Rule we discussed above. In other words, you should consider setting aside extra money for big capital expenditure projects. That way, again, you don’t have to rack up debt on a credit card to pay for them.
To do so, you can follow general guidelines for how often you’ll need to replace your home’s major systems, such as the roof, HVAC system, water heater, and more. Then, you can set aside some extra money each month to plan for those upgrades when needed.
Factors Impacting Costs
While the 1% Rule gives rental property owners a general guideline for how much they might need to budget for property repairs, your exact costs will vary depending on a number of factors.
Some factors include the age of your property, its location, and your tenant turnover rate. The older the property, the higher the cost of living in your region, and the more often you have tenant turnover, the more expensive your property maintenance costs will likely be.
Make sure to keep all this in mind when you’re finalizing a budget for property maintenance, as you may need to increase it from the 1% Rule.
Emergency Fund Strategy
All rental property owners can benefit from having an emergency fund. This is a cash fund that you can tap into whenever you have unexpected repairs and/or major replacements that come out of nowhere.
As a real estate investor, you will inevitably face unexpected costs. Being prepared makes it easier to handle financial challenges. By setting aside extra money each month into this emergency fund, you can help prevent any financial strain that these unexpected costs might cause.
Your emergency fund should have its separate line item on your monthly budget, and you should set up a separate bank account for those funds. Finally, you should only tap into that account for emergency repairs and upgrades.
Succeed in Real Estate Investing by Partnering with 1836 Property Management
These are just some property maintenance budget tips that real estate investors can follow to ensure they are protecting their investment, keeping their residents happy and avoiding potential financial catastrophe.
When you partner with an experienced, local property management company such as 1836 Property Management, you are getting a teammate on your side, helping you not only handle property maintenance but also guide you on how to maximize your returns.
1836 Property Management is located at 1704 ½ South Congress Avenue, Suite E in Austin, TX, and can be reached at (512) 994-4323.
For more information, please contact us today.
