How much should budget for maintenance?

23 Replies

I am currently making my own rental property calculator in excel, I was wondering how much should I budget for maintenance? Is their a rule of thumb, is it per square foot or something else.

Thanks in advance for your input!

A similar question about Capex

It depends on quality of construction, type of mechanical systems, age, and asset class. It's really a call every time...:)

Tristan C. My 6 year maint cost average is tracking at 2% of gross rent. Hope that helps... Frank

Ben is correct it completely depends on the place. I never budget anything less than 5% on a property when I am looking at them. Usually it's closer to 10% because I am looking at older units

@Frank Romine so 5%or10% of purchase price or of rent (monthly or annual)?

Thanks guys! 

Does it matter if it is monthly or annual?

2% is 2%.

You should save it monthly so it builds up over time and not have to try to pay yourself at the end of the year in one large sum.

I agree with everyone that there is a lot that goes into it than a rule of thumb. Also will you be managing it or will a property manager?  They sometimes have better pricing because of quantity, but at the same time they. Any not price around as much as you will.  If you are doing management yourself are you doing most repairs yourself?  This can make things much cheaper.  Are you the type of person that will fix things before they are truly needed or will you wait until it's hanging by a thread to fix it?  All these things will need to be considered along with the above. My advice is calculate high for the first few years until you get a feel for yourself and your area. 

One thing you can try is make some calls to maintenance companies in your area and ask them about the typical cost for repairing similar units as are or would be in your specific properties. Then also look up the manufacture's item to know what a new unit would cost. This is with regards to items such as HVAC, water heaters, and electrical manufactured items. There is no set number but take if from those that have experience and use a higher number such as at least 5% to 10%. There probably is not one set number because it will depend on the age of a property, the age of the system components, if there are maintenance records available for the properties you will be looking at and other factors. 

Thanks everyone!!

P.s I am going to self manage but I will still include the cost of a PM, also I do think I am pretty handy so I could do a lost of the repairs myself.

Always good to start by self management. In the years of self management I have learned so many valuable lessons fast. I personally budget the higher of 10% rent or $2000 a year. Remember you also have to budget for that roof every 20 years and that plumbing every few decades, etc. a water heater can take out most of your yearly budget but only need to be done every 10/15 years hopefully.

I base percentages on monthly rent 

http://budgeting.about.com/od/budget_home/a/How-Much-Should-You-Budget-For-Home-Maintenance-And-Repairs.htm

Say you have a 500 square foot house in city X that rents for $1,000/mo, and you also have a 30,000 square foot mansion in Detroit that also rents for $1,000/mo (sorry Detroit).

Which property do you think will have a higher maintenance expense? With an extreme example like this you can easily see that it really doesn't make sense to estimate these costs based on a percentage of rent. They should be based on the characteristics of the property.

re: CAPEX, make a list of things that will break and cost money.

For each item, list the expected life of the item, and how much it will cost at the time of replacement (eg the price of a condenser 10 years from now). Then divide the replacement cost by the avg lifespan to get the avg cost per year.

@Ben Leybovich had a good blog post about this. You can find it by searching his favorite key words: "pig" "buy" "ohio" "don't" "cheap" "math"

Originally posted by @Frank B. :

re: CAPEX, make a list of things that will break and cost money.

For each item, list the expected life of the item, and how much it will cost at the time of replacement (eg the price of a condenser 10 years from now). Then divide the replacement cost by the avg lifespan to get the avg cost per year.

@Ben Leybovich had a good blog post about this. You can find it by searching his favorite key words: "pig" "buy" "ohio" "don't" "cheap" "math"

 Hahaha - I left out a few of my favorite words out of that blog, Frank. Those I save fro when I'm blowing off steam on the phone with @Brandon Turner and @Serge S. :)

@Tristan C.

I think the construction and condition of the property should definitely be considered first as mentioned by @Ben Leybovich , and something in the range of 5-10% of gross rent should be sufficient. If it is a newer structure in good condition then you shouldn't have to be as aggressive saving for those expenditures, but eventually as you hold on to the property and it gets older then its always good to have those reserves in just in case something happens. Just my two cents though :-) Hope things work out well for you.

Hi @Tristan C. , if you're looking for the blog post by @Ben Leybovich here is the link: 

We’ve Done the Math: You Can’t Make Money on $30,000 Houses. Here’s Why…

I took the same approach as outlined by Ben in that article.  I own a duplex in Buffalo, NY that is almost 100 yrs old.  If you want to take a look at my spreadsheet you can check it out here: 

Cap Ex Spreadsheet

These numbers assume that everything in the house is brand new (which isn't the case) but it keeps it simple and gives an appropriate approximate number.  My monthly Cap ex reserve came out to $400 per month, $200 per unit.  I wouldn't use a per unit number though since many of the big items are for the entire property such as roof and siding... thus a building with more units will have a lower cap ex reserve per unit since they are all sharing the cost.  I'm not very experienced but this approach made the most sense to me.  Hope this helps!

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