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Owning rental properties can provide a valuable source of income, especially during tough economic times. However, it’s crucial to properly maintain your property to reap the benefits.
Maintenance of rental properties typically costs about 1% of the property value per year.
The price varies greatly depending on several factors such as the size of the property, the age and condition of the property, the location of the property, and the type of rental property (e.g., apartment, single-family home, condo, etc.).
Keep reading below to learn more about rental property maintenance costs.
Common Expenses Associated with Maintaining a Rental Property:
Property Management Fees
Hiring a property manager incurs additional expenses.
Repairs and Maintenance
This includes repairing leaky pipes, replacing broken appliances, and repainting walls. Repair costs depend on the age and condition of your property.
Property Taxes
Property owners are required by law to pay property taxes, which typically range between 1% and 2% of the value of their home each year.
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Insurance
Insurance is needed to protect your rental property against damage and liability claims. The cost highly depends on several factors, including the type of property, its location, and your preferred coverage option.
Utilities
Any utilities (water, gas, or electricity) you pay for must be included in your budget.
Pest Control
Keeping a rental property clean, safe, and habitable for tenants requires regular pest control treatments. The cost of treatment will vary according to the type of pests present, the extent of their infestation, and the frequency of treatments.
Fire Protection Systems
Fire safety systems (smoke detectors, alarms, sprinkler systems, and extinguishers) are designed to detect and respond to fires quickly, protecting tenants and the rental property.
These systems must be maintained and inspected on a regular basis to ensure they function properly and meet local fire codes.
The cost of installing these systems varies depending on the type, size, and level of protection desired. Professional providers of fire protection services can help you install these fixtures efficiently and cost-effectively.
Vacancy Costs
If your rental property is vacant for an extended period, you may still have to cover expenses like advertising, cleaning, and maintenance.
Emergency Repairs
You never know what could happen. Sometimes items require unexpected repairs.
For instance, the property may experience sudden flickering lights or an unusual power outage and needs to be inspected by a licensed electrician in Prescott right away. You can prepare for the unexpected by having an emergency repair fund.
It’s important to remember that rental costs can vary significantly based on individual circumstances, so consult a professional or use an online rental property calculator for an accurate estimate.
Tips For Calculating Maintenance Costs for Any Rental Property
The 50% Rule
Following the 50% rule means you should set aside half of your rental income for repairs, insurance, taxes, and any unexpected maintenance needs – such as hiring commercial roofing contractors after severe weather. This can be calculated at half the value of either your monthly or annual rental income.
Though 50% of your rental income may seem like a lot, it’s essential to remember that managing a property involves many tasks; regular maintenance is much cheaper than extensive and emergency repairs.
1% Rule
Experienced property managers generally agree that maintaining a rental property costs approximately 1% of its value annually. This means you would set aside around $5,000 annually to maintain a property valued at $500,000.
The 1% rule is an excellent tool for estimating the cost of maintaining a property you intend to purchase. However, keep in mind that if the property’s valuation is incorrect, your maintenance calculations may be incorrect, resulting in an insufficient budget.
Square Footage Rule
Another popular method to estimate maintenance costs is the square footage rule, which uses the size of a property to estimate costs. Under this simple formula, $1 will be set aside per square foot being managed. Unfortunately, this approach ignores any actual property value when estimating costs.
On average, maintenance for a 2,000-square-foot commercial property will cost $2,000 while a residential one of equal size would incur a cost of around $6,000. Ultimately, however, maintaining the commercial property would likely prove more costly than maintaining its residential counterpart.
Plan Ahead!
Planning ahead when it comes to maintaining your rental property is essential.
Although using the rules mentioned above for calculating maintenance costs is helpful, unexpected expenses still happen. A hurricane, tornado, or another natural disaster could strike your area. Your rental property may be damaged so severely that it will take months to repair.
Make sure to set aside some extra money in case these occur!
Furthermore, major maintenance or renovation projects such as re-roofing your entire house require a great deal of time and money so planning ahead is key.
Regular rental property maintenance can be challenging, but owners can ensure their asset remains secure, habitable, and profitable with careful planning and budgeting.
