How Much Should Rental Unit Maintance Expenses Be?
Does anyone know a good rule of thumb to figure out what to put aside to cover maintenance and repairs for rental houses? I currently own three small houses that are in excellent shape but they were built in the 1930's. I do about 75% of the repairs myself, but I'm not sure if I would be able to continue that if I purchased several more houses.
Are there any particular time periods that houses were built that have lower or higher long term maintenance costs?
Thanks,
Kent[ Edited by davmille on Date 09/27/2003 ]
I do about 75% of the repairs myself, but I'm not sure if I would be
able to continue that if I purchased several more houses.
It appears that you have all the information necessary to do your own expense analysis. You say that you do 75% of the repairs, so this means that you hire contractors for the other 25% and you already know that cost.
For the 75% of the repairs that you did in the past year, call the appropriate contractor(s) and ask for quotes for the repairs, to include trip charges.
This should give you a pretty good idea of what it would cost you to hire contractors to do all your maintenance work. Total and average the annual cost across your rental units.
Personally, I don't budget for unscheduled/unplanned repairs. Because I make sure that my Debt Coverage Ratio is at least 1.25, there is always plenty of cash flow to handle the maintenance as it comes up.
Dave T has given you the correct and standard answer. May I suggest another way that will hold down expenses, keep you amused and out of the bars.
By this time I am sure you have met and done business with a few of the single workers in the area, and a few of the singleworkers semi demi plumbers, electricians, roofers etc.
It is a good idea to stay on top, no not roof jobs, I mean on top of things property wise. I continue to supervise although I would probably faint if I got on a ladder. But with a few skills available to you from the local labor market, I would merely move up the ladder to Hands Off, Mouth Open status. I enjoy watching semi skills become skills as they seek ak to impress me with their knowledge and skills. My labor pool is basic Spanish Speakers, so they enjoy my attempts to speak with the proper Mexican or Guademala accent and the work is done fast, cause I am there and good, cause I cry and go into rages. I also tip them when they do super good. Like if the plumbing gets all the joints wiped and pretty, no globs of metal running down the sides of the pipes. Also when something nasty occurs, like cleaning up underneath the house and they found a dead cat. I conducted a wake at the end of the day and buryied the cat. We having finished for the days had beers and lime juice and toasted the dearly departed. Four small mice joined us boy were they glad to see the cat dead. Stay close. Costs go down and from that group of labors and skills will come your future construction manager as you pass the magic number of 10 houses. Cheers Lucius
Thanks for the feedback. So far my expenses have been quite low, but then again I've hardly had any turnover up to this point and I haven't my properties very long. I was afraid someone would say that I needed to put away a large percentage of the rent to cover long term costs like new roofs or something worse.
Kent,
Now you are talking about something else entirely.
Your question about repair and maintenance received the correct feedback. Apparently, you really meant something else. Repairs are what you do when something breaks (a plumbing leak, stopped drain, etc.). Think of maintenance as what you do to keep something from breaking (the furnace checkup in the fall and the cooling system checkup in the spring) or to maintain the appearance of the property.
Repairs and maintenance keep your property in working order, but do not add value nor extend the useful life of the property. Repairs are unplanned expenses, while maintenance is both a periodic and a recurring expense (e.g., lawn mowing, painting, scheduled preventive maintenance)..
New roofs and major systems replacements (such as HVAC) should be planned. Each of these systems has an economic life. Generally for a roof I use 20 years, for the HVAC I use 15 years.
If a roof replacement will cost $10K, then you want to put $500 per year ($41.66 per month) into a replacement reserve fund so that you have $10K in the account at the end of 20 years. Likewise, if the HVAC replacement will cost $3K, then you want to put $200 per year ($16.66 per month) into your replacement reserve fund. I generally don't treat wall-to-wall carpet as a major system replacement, but you may wish too. If you purchase a fairly durable product, it should provide about seven years of service before replacement is needed.
So, to answer your real question, you should put away a portion of your monthly income for those "long term replacements", but it does not need to be a major portion each month. In our example, if your monthly rent is $700, then at the end of the year, you should have added the equivalent of one month's rent to your replacement reserve fund.