How much do you as an investor need to budget on repairs and maintenance of your rental home? This can be one of the biggest unforeseen factors when you purchase an investment property and can make your investment a success as well as a disaster. Yes, it starts with the home inspection to make sure you will not have any immediate expenses, but we need to consider that maintenance is a necessary evil in a rental home not only as components of the home will eventually need to be replaced but because there will be a tenant living in it and using those components on a regular bases.
The hardest phone call a property manager has to make to a property owner is that one where we have to ask you to fund a large repair. We hate to be bearers of bad news. Being an investor myself, I know the lump in my throat when I receive that phone call from my tenant and I know it will take $3000 out of my pocket. Ouch! Immediately number flash in front of me: how much is this going to change my annualized return on the property? Where do I pull money from? Is the repair really necessary? Did the tenant cause damage? As a property manager I realize that the call is coming from our office to you … I am thinking how I can better prepare our investors for this upcoming phone call. Because it is going to happen sooner or later, it is just a numbers’ game, the numbers average out in the long run.
Let me fill you in on industry averages: we used to tell our investors to budget 10% of all rents received for maintenance. That is a good ball park figure but lately at our local NARPM (National Association of Property Managers) Chapter we had a speaker that had a better estimate. The National Association of Home Builder shows a better measure to be 1% of the value of your home per year. This means that if your investment home is worth 200K, you can expect to spend $2000 a year on repairs and maintenance. Now you will have good months, good years, but in the meantime, we have to budget for the numbers game to take effect eventually. While our warm Arizona climate helps us with the life expectancy of certain components of the home, the intensity of use being a tenant occupied property takes years off the life of certain items.
Ranges and ovens can last 15 years, dishwashers and microwave ovens 9 years at best. Our experience at Service Star Realty is that a tenant occupied home needs full paint every 3-5 years and new carpet every 5-8 years. Fixtures, 15 years, garage door openers 10-15 years….AC units require regular maintenance and even in the best scenarios they only last 15-20 years. The list goes on from landscaping to roofing, too much to write here. Here is a link to a study that shows in detail the life expectancy of many more components.
Functional obsolesces is another consideration, meaning that some items that may still work will no longer be preferred by consumers as styles and technology change. This is most prevalent with appliances. How this translates to you as an investor, you will not be able to collect top rent or re-sale price for the home if your appliances are “antique”.
How can we improve our odds: With the proper level of maintenance. Service Star Realty offers a program where we visit your home 3-4 times a year not only to change your AC filters but to take a candid look at the condition of the home and landscape, as well as check for habitability issues. What we mean by habitability issues are the items that can get you into legal trouble if you do not provide and maintain properly, like smoke detectors and pool safety are the two most important ones.
Preparation is key in handling maintenance. Surprises are uncomfortable. Appropriate expectations and proper budgeting will help.
