How much should owners budget for rental maintenance?
Owning an investment property is a little bit like running a business. On one hand there’s income that you can expect from the weekly rent, and on the other there are expenses.
Most of these expenses, such as property management fees, mortgage costs and council rates, are fairly predictable each month.
But when it comes to required maintenance and repairs it can be a little harder to forecast exactly how much a rental owner needs to set aside in case of the unexpected.
So how much should a rental owner be budgeting each year for maintenance and repairs of their investment property?
Here we look at a couple of rules and forecasting tools that assist…
Maintenance matters
As we mentioned, there are a range of costs that every rental owner can account for each year when it comes to their rental property.
These include:
- Council rates
- Water charges (if applicable)
- Property management fees
- Mortgage repayments
- Body corporate fees (if applicable)
- Re-letting your property
Maintenance and repairs, on the other hand, are a little trickier to forecast.
Some years your property might require a series of repairs and ongoing maintenance, and occasionally these repairs might involve big-ticket items such as the replacement of a hot water heater or air-conditioner.
Other years there might be minimal repairs and maintenance required, and the costs involved with looking after your property might just extend to proactive maintenance like an annual gutter clean and smoke alarm check.
The repairs and maintenance required might also be specific to the age and condition of your property, with newer homes requiring fewer repairs in their early days.
But regardless, it’s important rental owners factor possible repairs and maintenance into their annual budget, so here are three accounting rules that can assist.
The 1 per cent rule
Originally devised for owner occupiers, this rule relates to the value of your property and sees you set aside 1 per cent of its value for maintenance and repairs each year.
If the property is valued at $500,000, this means you put aside $5000 for maintenance and repairs. It’s a rule considered effective because it accounts for the general rise in maintenance costs associated with areas where property values have increased.
The 50 per cent rule
This rule is based on the gross income you receive from your rental property each month and involves an assumption repairs and maintenance cost up to 50 per cent of that income.
For example, if your property receives a gross income each month of $2000, half of that would be put aside for maintenance, equating to a $12,000 budget each year.
This is a fairly generous formula, but allows rental owners to have a kitty at the ready for both small and large repairs.
The 5x rule
The 5x rule is also based on rental income, but in this instance you multiply your monthly rent by 1.5 to determine your potential maintenance costs.
For example, if the monthly rent is $2000, your annual maintenance budget would be $3000.
It pays to budget
As you can see, each of these formulas throws up quite a different figure, and really it depends on the age of the property, and its condition how much you’re likely to spend each year.
But the bottom line remains the same – it’s a good idea to have money set aside for repairs when they’re required.
There are also some general repairs that you can factor in each year in advance, such as:
- Pest control
- Gutter cleans
- Smoke alarm inspections
Meanwhile, a good property manager can also assist by flagging items that might need attention in the future, so you can budget for their replacement or repair.
How we can help
Our experienced property managers pride themselves on establishing great relationships with both rental occupiers and owners.
We manage every property as if it were our own and you can learn more about our property management services here.
Alternatively, if you are looking to rent a property, you can view the properties we currently have available here.
