Investing in a property offers ample opportunity for a healthy ROI and can be as hands-free an experience as many a good investment. On occasion, however “stuff” will happen in the form of maintenance issues. What can you expect in terms of maintenance, and how should you react to these incidents? By managing expectations and going in with a basic cost framework in mind, these unexpected and slightly bothersome events can be easily dealt with.
Going by the Numbers
Preparation in advance always makes things easier. One way in which you can prepare for maintenance issues is by having a cost framework in place. By understanding these numbers ahead of time, you won’t feel a pinch every time a maintenance issue rears its head.
There are a variety of formulas investors use when assessing how much annual maintenance should cost:
- 5% rule: Maintenance equals 5% of annual revenue
- 1% Rule: Maintenance equals around 1% of a property’s value per year.
- 50% Rule: Maintenance and repairs should be around 50% of total operating costs.
- 5x Rule: Maintenance averages out to around 1.5% of monthly rental income.
- Square Foot Formula: Maintenance equals $1 per square foot per year.
For example, going off the 1% rule, with a property worth $500,000, you should expect annual maintenance costs to be around $5000, or about $416 per month. On average, property maintenance costs can run from $75 to upwards of $400 per month depending on various factors such as square footage, contractor fees, the nature of repairs, and a home’s location.
Checking your Expectations
While a property is an investment and asset for you, remember that, at the end of the day, the house is a home to your tenants. What’s more, your tenants’ lives may look very different from your own. Your preconceived notions about living in a space may be quite far apart from those of your tenants.
Try not to project your own cleanliness standards onto your tenant, who again, may live differently than you. Make sure your expectations are not impossible to hold a tenant to. You might, for example, maintain an impeccable home to the degree that people feel as if they are visiting a museum when they stop by. That is your standard. A tenant might still be clean and hygienic, but not maintain their home to those standards.
Repairs to Expect
Expect common repairs to come up on a regular basis and know that it is impossible to create a scenario in which these things do not happen. Don’t ascribe fault to a tenant when it comes to these repairs, either, as they are just part and parcel of the normal wear and tear that occurs in a residence.
Common repairs that you should expect to come up include:
- clogged sink drain
- leaky faucets
- paint chips
- scratched floors (from pets, high heels, etc.)
- clogged toilet (from flushing baby wipes, feminine products, and other non-flushable items)
People live their lives, and things happen, especially when there are kids around. In one property that we manage, a kid flushed his GI Joe down the toilet. So, you never know what to expect.
Don’t ascribe fault to a tenant when it comes to these repairs, either, as they are just part and parcel of the normal wear and tear that occurs in a residence. Since you have already run the numbers, too, and know what to expect in terms of cost, these shouldn’t cause you any stress or inconvenience.
Maintaining an investment property does not need to be a high stress scenario for you. Preparing yourself for what’s to come is the best way to ensure that these small exigencies cause little trouble for you and have little impact on your investment portfolio.