What % of gross rents should be allocated to repairs

Question

Hello,

Just finished my taxes for 2008.  I noticed that my % of cost from repairs compared to gross rents was 4.7%.  I currently budget 10% of gross rents for repairs.  IE if rents are $800 a month, I set aside $80 for when repairs are needed.

For the experienced folks, what is your average % for repairs you set aside and experience.

Thanks,

Kenneth LaVoie · Answer

I'm curious if, overall, there's a huge difference in repairs and maintenance as % of gross income for DYI vs. delegating to handymen.  I know that you, Mike O, recommend DYI, but I personally have a landscape business AND web design where I make $50-$70 per hour during the warmer times. (and my handymen get $16)  I've got 35 units now, and have a decent team, but I'm only in my 2d year as an investor, and I bought properties with cost plus improvement loans, so we've done alot of up front work, which makes our maint. costs around 50% of gross income this year, in other words I haven't had a chance to see how these properties perform "normally."

So long story short, I'm hoping my "pound of prevention" gives me decent numbers going forward. I'm just curious about the DYI vs. delegate numbers though.

Will Barnard · Answer

One thing to consider in these types of analysis: if you purchase a new home and your exit strategy is within 10 years, it is likely you could receive a lower OE ratio simply because you skipped the larger capital expenses. This is not to say that you will not have the routine maintenance items, vacanices, evixtions, administartive, etc hit you so do not discount them.

Michael Rossi · Answer

I would totally disregard anything you read from that source.  Maintenance varies little due to the age of the house.  It's true that you shouldn't have many capital expenses for a brand new house, but you'll very quickly begin to have other routine expenses such as carpet; paint; leaky faucets caused by tenants overtightening the knobs; clogged toilets; damaged appliances; frozen water lines when the tenant has their heat shut off;  holes in walls; etc, etc, etc.

Even in the oldest properties, maintenance shouldn't be ANYWHERE NEAR 25%!  In fact, any well maintained property, whether old or relatively new should have relatively equal maintenance expenses.  I have properties from 175 years old to 6 years old and the maintenance is nearly identical.

Furthermore, capital expenses can occur in newer homes also.  I bought a new home for my personal residence about 14-15 years ago and I've already replaced the heat pump twice and we're replacing the roof this year (due to storm damage).  Yes, that's covered by insurance, but I have a $1,000 deductible.  I have $5,000 deductibles on my rentals.

Mike

Jeffrey K. · Answer

I was just reading some stats and they provided this chart:

Age 0-10yrs  5% of monthly income
10-25yrs 10% of monthly income
25+ 15-25% of monthly income

Hope this helps

Lorne Shive · Answer

Alex-
Typically when a tenant moves out or is evicted the money spent on the repairs is usually (usually) paint and carpet.  There have been circumstances that have ended upwards in the $2000 range to get my properties back to move in condition... So it really depends on you as a landlord and the actually circumstance.  Also it depends on if you are renting to Section 8 tenants.. If you are.... then you could spend way more to fix the home back up to Section 8 approval..  
I start my repairs at $1500 per house each time a tenant moves out.. That way I normally over compensate for the repairs that were needed.  
This number should help you understand better because you have to factor in the idea that the tenant may not fullfill the lease.. So the 10% of the rent amount would not come into play...

Remember when referring to Rental houses... its not "If" something happens Its "When" something happens!!

Hope this helps!!

Account Closed · Answer

10% seems a pretty good number depending upon condition at takeover.

Major expenses like roof, kitchen, bathrooms, heating/cooling come along infrequently, but they do come.

Michael Rossi · Answer

While I use 50% for all operating expenses and don't try to predict individual expenses, I think 10% of the gross rents is a good number for maintenance.

Mike