Rental property repairs typically show up when you least expect them, wreaking havoc and hurting your bank account. So, if you’re considering buying a property (or if you own one you want to rent), don’t forget to include estimated repairs in your budget. Repair costs may not be as predictable as a mortgage and HOA fees, but they’re just as important to the bottom line.
Creating An Accurate Repair Budget
When you figure costs correctly, you’ll gain an accurate estimate on your profit. Each month, you’ll take the rental rate and deduct the mortgage, HOA fees, and insurance to find your profit. Then you’ll set aside funds for repairs (current or future). Then, when an issue comes up, you can pay the bill and move on.
However, if you’re relying on the maximum profit (before repairs) and have an unexpected plumbing issue, your profit won’t be what you expected. The extra costs that month can make it more difficult to pay the mortgage, taxes, or insurance. And you can’t delay repairs until you’ve saved up. If the pipes under the house need to be replaced and you don’t have the profit to cover it, you’ll be paying out of your own pocket for those must-do jobs.
How to Calculate Rental Property Repair Costs
Each house is different, and a homeowner knows the property best. So, as you estimate repair costs, consider what will need to be replaced, what the fixed maintenance expenses will be, and how to prepare for the unexpected.
Major appliances keep your house comfortable and need to be replaced quickly when they malfunction. So be prepared for a quick replacement when the time comes.
As you calculate potential costs, keep the age of these appliances in mind. Some appliance replacements hit your bank account hard if you don’t expect them. But, with a little foresight, you can prepare for a replacement if you know it’s nearing the end.
When you’re in the long-term property business, the question isn’t if you’ll need to replace these systems, but when. Here’s a quick guide to the life span and replacement costs for major appliances.
Not all repairs will be replacements. As you maintain your property, calculate fixed expenses like A/C preventative maintenance that increases the longevity of your HVAC system. This costs about $80-150 annually.
Also, plan to keep your foundation watered. Once the foundation shifts, you’ll have cosmetic issues all around the house where the walls shift and cracks form. It’s much easier to prevent a foundation problem than to fix its effects.
You’ll also have unforeseen circumstances that result in damages. Storms can tear up your roof, dent your siding, and blow over your fence. High winds cause tree limbs to fall. If there’s an unexpected freeze, the pipes can burst, which can result in extensive damage.
Some repair costs you can plan for. Others you can’t. The key is to budget as well as you can and to save for the unexpected.
Keep Your Investment Profitable
There’s more to repairs than fixing cosmetic issues that keep the house up-to-date. Something will break. Repairs will always be needed. So make sure you (or someone else) keep track of them.
If you don’t save for repairs from the beginning, they can turn your investment upside down. If you can’t pay for needed repairs, you may breech the lease. Then the problems quickly snowball into tenants who leave, lawsuits, and so on.
Prolong The Life of Your Rental Property with Preventative Maintenance
If you want to minimize the number of repairs your rental property needs, we suggest performing regular preventative maintenace. Preventative maintenance is routine maintenance done to your property to preserve your investment. It reduces the risk of unexpected maintenance problems that will cost you money.
A safe estimate for a preventative maintenance budget is 1% of your property value, depending on the age of the building. You should expect to continually put money into preventative maintenance to prolong its life.
There are several preventative actions that will benefit your property and potentially save you cash in the future. Here are the three main areas where you should be proactive with property maintenance.
Water the Foundation
The most expensive property repair (and the easiest to prevent) is shifts in the foundation. When temperatures are high and there’s no rain, soil starts to move away from your building. Once the soil moves, the property can move and cracks will appear throughout the structure.
Not only does it affect the aesthetic, it affects your resale value and it’s expensive to repair.
It’s much simpler to prevent shifts by watering the foundation with a regular hose or putting out a sprinkler when the weather is dry.
Replace HVAC Filters
Replacing the air filters regularly is beneficial for the property owner and the resident. The system performs better when the filters are clean and it makes the air cooler.
If you don’t change the filter it collects dirt that your residents can breath in. Dirt also causes the system to run inefficiently and leads to malfunction. Do yourself and tenants a favor by replacing dirty HVAC filters.
Prepare for Cold Weather
Water is the most destructive thing to happen to a property other than fire. Take measures to prepare the pipes at your property from cold weather. Frozen water can expand and burst pipes which requires extensive repairs, especially when it happens indoors. Prevent damage from cold weather by winterizing your sprinklers, untying hoses, covering spigots and leaving water dripping during snowstorms.
Get Your Residents Involved
Weather is unpredictable, so getting your residents involved is helpful when you need to take preventative measures at the last minute. Stay aware of weather patterns that may be detrimental to your property. If you see that the weather will be below freezing notify your residents to protect the pipes. You can explain the tasks in detail through an email blast and mention their accountability if damage occurs as a result of their negligence.
Home repairs don’t follow the rules and are likely to come sweeping in when they’re least expected. So be prepared for them. Keep home repairs in your equation from the start.