Budgeting for maintenance
Repairs and maintenance are a fact of life if you own a rental property. While some costs can be planned and budgeted for, its the unexpected ones that can cause an unwelcome financial burden. The most a landlord can do is be prepared for the worst.
What is an effective plan for maintenance?
The general rule is to earmark between 1 to 3 per cent of the propertys value for maintenance and repairs. As an example, in December 2015 the median house price in Perth was $540,000. If we use the rule, we can calculate that $16,200 or somewhere around $100 to $300 per week should be set aside. At present, the current median rent is $400 per week so, based on the above, this would amount to 25 per cent of the rental income being delegated for repairs and maintenance. In a world where negative gearing is commonplace, this allocation may be difficult for some owners.
How much maintenance does a property require?
There is no one-size-fits-all approach to determining how much maintenance is required for each property. Maintenance requirements are determined by things such as:
- property condition
- property age
- property size
- property type.
In a single standalone home the owner of the property is responsible for maintenance and repairs to the roof, painting and other costs, but in a strata situation this may not be the case.
The key is the return
While for some investors looking at the value of the property to determine maintenance may work, it may also be beneficial to take a look at the propertys returns to calculate the repairs budget. Somewhere between 10 and 20 per cent of the income of the property should be set aside for repairs. Using the current median rent, this would mean something in the region of $2000 to $4000 should be set aside for repairs each year. If we estimate that $500 would be put towards regular annual maintenance such as pest inspections and gutter cleaning, this would leave between $1500 to $3500 for yearly repairs. With a proactive property manager on your side and a trustworthy tenant who catches repairs early, this budgeted amount is ideal.
Another possible system is to ask your property manager to hold a certain amount of your account for repairs and maintenance. This might mean some slow return weeks initially, as you build up the account, but it is a good stress buster.
What types of maintenance should you budget for?
Rental properties need a little extra care to ensure they can attain the best possible rental return. To achieve that, regular repairs and maintenance are a must. There are many different types of maintenance that you may want to consider. You can choose cyclical maintenance tasks like servicing of the hot water system, air conditioner or reticulation, gutter cleaning or annual garden tidying. Or perhaps you may wish to concentrate on improvements like painting and new flooring, or just budgeting for general repairs. Your property manager can provide you with expert advice that ensures youre making smart decisions that will grow your return.
What system works for you?
The key to handling repairs and maintenance is being proactive. Your property will need regular, ongoing maintenance that is handled quickly and expertly. Just remember: maintenance on your property is maintenance on your investment, so it is vital to have a plan for how you will approach it.