Budgeting for rentals

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Hi, Im just starting out In BaltImore. Is there a formula for budgeting for preventative maintenance and repairs. I have a 3BR condo to rent. Diana

Hey Diana,

Here are the guidelines I use, though you'll need to make variations based on your market, age of properties, etc. This is specific to single family homes, so you could definitely lower these amounts, especially CapEx, for a condo where most of the major expenses will be covered by your HOA.

  • Initial CapEx Funding at property closing: At closing, as part of my 'cash needed to close' calculation, I take 3% of the sales price and set it aside in a separate CapEx savings account.  I may adjust up or down depending on the initial repairs that it will take to get the property online and in production. Generally speaking however, for a property that is ready to go, I will contribute 3%. You'll notice the BP calculator allows you to include custom categories for closing costs and I just include the amount in one of these fields.
  • Monthly contributions for CapEx: Right now, I'm contributing 10% of rent each month to the same CapEx account (again, a separate account for each LLC and not for each property). I've found that might be a little too much, but I'm not inclined to change it right now. 6% might be pretty much on target, but it does depend on the location (some areas simply have harsher conditions and also might be more expensive for repairs) and the age and condition of the property. Whatever number you choose, including it in your cash flow calculations is essential.
  • Monthly budget for OpEx: Operational expenses, like fixing locks, doors, unstopping toilets, etc are funded through a budget of 3% of rent. I don't set this money aside like I do for Capex, but I do budget for it when I'm calculating the financials on a property.

Hope that helps!

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