Estimating your property maintenance on your rental might feel like an overwhelming task. How could you forsee how much to set aside for rental property maintenance costs? What could go wrong anyway, right?
When we invest in rental properties, we do so with anticipation of a return on our investment. When we don’t factor building maintenance into our rental strategy, our investment can quickly turn into a money pit.
There are a few different schools of thought when it comes to how much money you should spend on your property maintenance and a formula for each.
The Formulas for Rental Building Maintenance Cost
- The 50% Formula – In this equation, you would take your income from the property and apply 50% to the maintenance of the property. For example, if your income equals $500/month, you would want to set aside $250/month for maintenance and repairs. This equates to $3000 a year.
- The 1% Formula – To find the 1% option, you would take the property value and extract 1% of that value. This total would be the annual cost you would set aside or use to maintain your rental. For example, if your property is valued at $250,000, you would take 1% of that value which is $2500.
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- The 5x Formula – This formula would take the monthly rental fee and apply a 1.5 times rate to come up with how much money you will likely need for property maintenance. For example, if the property rents for $1500/month you should expect to spend $2,250 on building maintenance.
- The Square Footage Formula – This is a 1 for 1 ratio calculation. Take the square footage of your rental to get the annual cost of maintaining it. For example, a 1300 square foot home will cost $1300 a year to maintain.
The caveat to all of this is that labor and materials are likely always going to be more than you anticipate. This might be because what started off as a minor repair, upon more investigation, turns into a major maintenance cost.
It’s best if you set aside an alternative “emergency” fund which will put your mind at ease so as to not threaten a year or more of your rental profits.
Get Property Proactive
One way to prepare for rental maintenance is to be proactive about looking after the property. You can do this by scheduling regular inspections of the rental home or building.
Almost all disasters start off as minor issues, the job of a rental property inspector is to locate those issues before they turn into a project that wipes out your maintenance cost budget. Our final suggestion to be proactive is to create a rental maintenance calendar and stick to it.
If you need a rental property inspection or want to learn more about how rental inspections work, visit our service page here. We can help you prepare your property for the years to come and help you grow your investment.