Managing a rental property is a great way to build an additional stream of income. However, with it comes the responsibility of ensuring your home’s safety, security, and basic upkeep. Responsive and proactive landlords know that keeping up on property maintenance is essential if you want to preserve home value and ensure the safety and security of your tenants. But they also understand that it’s an investment of their time and money.
Here are five tips to consider when planning out your rental property maintenance budget:
1. Assess Your Needs
You can anticipate expenses such as mortgage payments, routine maintenance, utilities, property taxes, turnover maintenance, and insurance. These are recurring costs you’ll incur to maintain your property and should always be included in your budget.
Depending on the condition and age of your property, you may also be able to ballpark other potential maintenance expenses. For instance, if your home is over 20 years old, you should expect to spend more annually on general upkeep than you would with a brand new home. Assessing your needs and planning in advance will help you anticipate costs and allocate your budget accordingly.
2. Consider Your Financing Options
A key component of setting a budget is knowing where the money will come from. While it’s always ideal to pay for maintenance projects in cash, not all landlords have enough on-hand to cover the total cost of repairs. For major maintenance projects especially, managers may need to access a larger amount of cash.
While the best option will vary depending on your specific financial situation, most property managers choose to take out personal loans, pull from their savings, or even tap into their home equity to finance repairs. Once you determine how you’ll finance your project, you’ll have a better sense of your spending limits and what you’re actually able to afford.
3. Set Aside Savings
Unexpected home maintenance and repairs can derail your financial health if you aren’t prepared. That’s why it’s important to set aside some funds so you’re equipped to take on any issues that arise. As a general rule, you should aim to put at least 1% of your home’s total value into savings each year.
These savings can not only be used for routine maintenance but also any emergency repairs, tenant requests, or early rental terminations. In the case of early vacancies, property managers may also benefit from having reserve funds to cover advertising costs and tenant screenings.
4. Estimate Costs
As you build out your budget, do some research on how much you should expect to spend on labor and materials for specific projects and repairs. Having a general sense of average maintenance costs will help you ensure you don’t overspend or overpay contractors when it comes time to renovate or repair.
Think about any supplies you purchase on a regular basis such as hardware fixtures, paint, and air filters, and plan out a spending schedule based on how often you need to restock. Just as it’s important to know what you need to purchase, knowing when you should expect to buy more can also help you allocate your budget throughout the year.
5. Prioritize Projects
While you may be able to postpone some routine maintenance, any issues that could put tenants at risk like hazardous living conditions or security flaws, should be addressed promptly. Neglecting certain issues is also against the law, which is why you must budget for and prioritize critical maintenance projects and repairs.
Once you’ve established a budget for necessary maintenance, you can make a list of any non-essential projects like repainting or upgrading appliances that you would like to complete. While they’re not required, these projects may help boost tenant satisfaction and improve property value and curb appeal. So, if you have the financial means, you can factor these into your budget as well.
As a property manager, you’re responsible for keeping your property habitable and your tenants satisfied. Upholding your property in top condition will help boost its value and encourage renters to stay for the long-haul. As you plan out your monthly and yearly budgets, be sure to keep this list in mind so you can keep your rental business running smoothly!