Rental Property Maintenance Expenses
Rental property maintenance is an integral part of being a landlord. But whether you’re managing your first rental or are planning to add another property to your portfolio, it’s essential to understand how to estimate rental property maintenance costs.
In this article, we cover common methods used to estimate rental property maintenance expenses, different types of maintenance costs, and helpful rental property accounting platforms.
How Do I Calculate Maintenance Costs on A Rental Property?
There are various ways to estimate maintenance costs, such as the 50% rule, 1% rule, and square footage rule. The approaches differ slightly, but each rule ensures that you have enough available to cover routine maintenance and unexpected repairs.
The 50% Rule
The 50% rule encourages landlords to set aside half of their monthly rental income for repairs, maintenance, and additional property management costs. If you charge your tenant $1,200 for rent, then $600 would go towards monthly expenses if you’re following the 50% rule.
The 1% Rule
This method suggests that annual maintenance costs will total approximately 1% of the total property value. If your unit’s value is $300,000, plan to budget about $3,000 to spend on rental property maintenance.
The Square Footage Rule
Under these guidelines, landlords set aside $1 per square foot of the property. A 2,000-square-foot rental will require approximately $2,000 to maintain annually.
These are only a few of the general rules of thumb for estimating costs, but remember that they are only estimates. As an additional step, you can reach out to other landlords and property managers operating in the area for feedback on their costs and budgeting strategies via phone, social media, or an online community for landlords.
What Is Included in Rental Property Maintenance Costs?
Maintenance costs cover a wide range of expenses that can be separated into two categories: fixed and variable. Understanding these distinctions can help make estimating rental property maintenance costs more accurate.
Fixed Expenses Examples
Fixed expenses are costs that are paid for at regular intervals, such as monthly or annually. These expenses aren’t fixed at a specific price point but are recurring expenses to help maintain the property and operate your rental business. Here are some common examples of fixed property expenses.
- Routine maintenance: Routine maintenance refers to the necessary fixes that a rental property requires. This includes tasks like landscaping, power washing windows and siding, replacing furnace filters, and more. Landlords can combine the costs of each task over the course of a month for a reliable estimate of this expense.
- Move-out repairs: These are repairs that you complete when a tenant’s lease has expired and they move out. After completing a move-out inspection, you can identify whether certain rooms require new paint, if the carpet needs to be shampooed, and more.
- Utilities: Utilities can include electricity, water, natural gas, and more. Before estimating this cost, consider who is responsible for paying utilities at your rental — the landlord or the tenant. If you cover them yourself, combine the total monthly fees to estimate what other months could cost. If you operate a multifamily rental, consider the utilities for common areas. Even if you include utilities in your rent price, you may have to cover additional costs for these shared spaces.
- Insurance: Purchasing rental property insurance coverage can make for a smoother renting experience for landlords and tenants. You may need additional protection based on geographic location, or you may want to protect your property from specific situations. After speaking to an agent, you can incorporate your insurance premium into your expense estimates.
Variable Expenses Examples
Variable costs are expenses that arise throughout operating your rental. They may or may not occur regularly, so it’s a good idea to set aside a little bit extra in case of emergencies.
- Seasonal maintenance: If you live in an area that experiences different seasons, some of your maintenance expenses can go towards adjusting for seasonal scenarios. For example, you may need to replace filters and check the belts of the HVAC system to prepare your rental for summer, rake leaves during the fall, and have sidewalk paths shoveled during the winter months.
- Appliance repairs: Over time, your rental property appliances will require repairs. Appliances don’t break down at regular intervals, so consider the number of appliances in your rental, their age, and how frequently they’re used when you estimate this expense.
- Emergency repairs: It’s always good to have funds available for emergencies to address emergency repairs right away, especially considering local landlord-tenant laws require landlords to do so. If a pipe bursts at night, the heater dies in the middle of winter, or a tenant’s air conditioning stops working during a heat wave, you’ll have to get the problem addressed as quickly as possible. It’s impossible to know when an emergency may occur, so you may consider accounting for an emergency fund when estimating your rental property maintenance expenses.
- Capital expenditures: Capital expenditure, or CapEx, refers to the cost of making improvements to a rental property to increase the overall value. Unlike necessary repairs, these improvements are mainly intended to raise the value of the property and aren’t necessary to make the space safe for tenants. Replacing a fridge with a stainless steel version would be a capital expenditure, while simply fixing the old fridge that’s already on the property would be considered a repair.
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