Your rental property’s maintenance costs are often some of the larger expenses you’ll face, aside from mortgage and property taxes. These expenses keep your units habitable and should be one of your topmost concerns to ensure that your rental investments are occupied by happy renters. More importantly, maintenance and upkeep keep liability lawsuits at bay. According to the 2021 Harvard Joint Center for Housing Studies-Farnsworth Group healthy homes survey, 43% of renter households are concerned about how their units affect their health, safety, and well-being.
It’s also important to note that staying on top of your rental homes’ maintenance tasks is also one way to maintain their profitability. By keeping the exterior and interior elements in their best shape, you can continue pricing your rentals according to the current market prices.
Given the importance of maintenance in the success of your business, it’s essential to be prepared for the maintenance expenses you will encounter down the line. This blog will take a look into the hows and whys of rental property maintenance costs. We’ll also examine the various ways you can determine the estimated cost of maintaining your properties.
What affects the cost of maintenance?
How much money you need to preserve the quality of your rental homes will differ depending on a variety of factors. In a study by the Journal of Real Estate Research, it was found that the following factors will affect how much you’re going to spend on maintaining your units:
- Age of your property: Typically, the older a property gets, the more you’re going to spend on maintenance. If the home is older and built with subpar materials, you may expect to spend more on maintenance to ensure that the quality is at par with the rent price you’re demanding.
- Amenities: Upgraded appliances and additional fixtures is one way to attract more renters and increase rent. However, it’s also important to bear in mind that these amenities also add up to your maintenance costs. For instance, heating, ventilation, and air conditioning systems, while essential to many renters, demand regular maintenance work.
- Turnover rate: If your properties are seeing a higher frequency of move-ins and move-outs, you’re going to spend more on renter turnover maintenance and the general upkeep needed to attract prospective renters.
- Type of property: Fully-furnished homes may demand more frequent repairs and maintenance compared to those without appliances and furniture. Additionally, you also need to consider how many tenants are living in each property. The number of people living in these units can affect the degree of wear and tear on the property over time.
- Other hazards: If your units are located in flood or earthquake-prone areas, you may be looking at higher costs for mitigating or reducing their impact. In addition to the cost of repairs and replacements, you’ll also have to pay for liability insurance if someone is injured on your property.
Understanding what influences your rental property’s expenses can guide you to formulate a rough estimate of how much you’re going to spend. Knowing these factors also provides insight into how you can keep your maintenance costs to a minimum. For instance, investing in a renovation for older properties or preventing turnovers can help you keep your maintenance costs from significantly affecting your profit.
How to estimate rental property maintenance expenses
Set realistic expectations on how much you’re going to spend on maintaining your property. Although there are fixed rules about coming up with an estimate, there are several methods that you can use.
The formulas below will only give you a rough estimate. The actual maintenance expense might be higher or lower, depending on any emergency repairs or routine maintenance tasks that may need to be done throughout the year.
The 1% rule
The 1% Rule is one of the easiest ways to come up with a ballpark figure for how much you will need to spend to keep your units in good condition. According to this concept, you can expect to spend 1% of your property’s value on maintenance every year. So, if your rental home is valued at $200,000 then your estimated annual maintenance costs will be around $2,000. You can break this down further by dividing that number across 12 months, resulting in a monthly maintenance cost of roughly $167.
Square footage formula
Another commonly used method of calculating maintenance expenses is useful if you’re aware of your property’s total square footage. According to the square footage rule, you ought to budget $1 per square foot of your property for annual maintenance expenses. For example, if the total area of your rental apartment measures 882 square feet, you can simply budget $882 dollars for maintenance each year, or $73.50 per month.
The 50% rule
Under the 50% rule in real estate investing, expect to set aside half of your investment’s gross annual income for various expenses, including maintenance, repairs, property taxes, insurance, turnover-related expenses, and utilities. Although this particular rule isn’t specific to maintenance alone, it can show you how much cash flow you’re expected to make once you factor in maintenance. Say for instance that you’re charging $1,700 for the monthly rent of a 1-bedroom apartment. By the 50% rule, you should expect to spend about $850 dollars for maintenance and other operating expenses.
By using the formulas above and taking into account the various factors that may affect your rental property maintenance costs, you’ll now have a starting point on how to budget. Make sure to keep track of how much you actually spend on repairs and upkeep on a monthly basis and adjust the budget you originally prepared as needed. Any excess cash that you didn’t use up from the budget can be set aside to prepare for big-ticket items in the future such as replacing the roof or repainting.
How to keep your rentals in good condition
Rental property maintenance costs are inevitable. It’s impossible to completely avoid them, but there are things you can do to keep them under control. Being proactive about your property’s maintenance tasks and tickets keeps costs down and ensures that your renters are occupying a safe and healthy home.
Here are a few tips and tricks to help you stay organized and keep your rentals in good shape:
Don’t ignore routine maintenance jobs
Maintenance nightmares such as pest invasions, flooded bathrooms, or mold infestations can be easily avoided by performing routine maintenance work. Setting up a maintenance checklist and schedule containing the tasks that need to be done on a monthly or weekly basis can help reduce the risk of emergency repairs which can be stressful and costly.
Having a checklist on hand can help you perform preventative maintenance on the major systems of your home including:
- Air conditioning system (clean coils and filter)
- Refrigerator (clean intake filter)
- Appliances (check for loose handles, missing screws or parts)
- Electrical outlets and switches (inspect for wear and tear)
- Light fixtures (replace burned-out bulbs)
Conduct regular inspections
Maintenance inspections are essential for catching any minor issues that your renters may have failed to notice. Typically, property owners are encouraged to conduct inspections around their properties quarterly.
Before visiting your rental property, make sure to be fully aware of the applicable landlord-tenant laws in your region. In many states, you’re required to inform your renters about the inspection at least 24 hours before your scheduled visit.
Avoid DIY fixes
You may be tempted to handle repair requests on your own to keep maintenance expenses down. However, doing this may do more harm than good. Without the right expertise and skill set, you may end up damaging your property even more. Doing the repairs yourself may also take up a big chunk of your time and resources especially if you’re managing multiple properties. For this reason, it’s best to leave repairs to the professionals.
Some property management companies, like Poplar Homes, offer 24/7 maintenance support and work with a network of licensed and vetted service providers. With Poplar’s tech, you can step back from the nitty gritty maintenance tasks and focus on running your business.
Keeping your rentals in the best condition should be every property owner’s topmost priority. However, staying on top of maintenance and repair expenses can be overwhelming if you’re not sure where to start. Luckily, there are various methods available in the industry to help you figure out how much you’re possibly going to spend on maintenance on a yearly and monthly basis.