How much should a landlord expect to spend keeping their home maintained?
It's a common question and there are some rules of thumb and considerations that owners of rental properties can keep in mind when setting aside reserves to handle unexpected repairs.
As a property owner, it can be impossible to predict what maintenance your rental property will require, and how much the maintenance will cost. But one thing is certain—when you decide to be a landlord, you need to have reserve funds set aside for maintenance work.
After all, you need to have a buffer for the unexpected so that repairs don’t lead to the failure of your investment property. It’s a good idea to decide on a fixed amount of the monthly rent you collect that can be used to cover expense items when they pop up.
You may also want to enlist the services of a property management company who can handle maintenance on your behalf, and who will have experiencing negotiating the best rates on repair work.
While maintenance-related expenses can be hard for property owners to predict, there are certain guidelines and rules of thumb that many landlords adhere to when it comes to planning how much they may have to spend. Below, you’ll get a full overview of these guidelines.
Rental Property Upkeep and Maintenance Guide
The 1% Rule
This popular rule says that 1% of the purchase price of your home should be set aside each year for ongoing maintenance.
Using this logic, if your home is worth $450 000, you should set $375 a month for expected home maintenance and anticipate about $4500 in repair costs during the year.
The Square-Foot Rule
Another practical approach is to budget $1 per square foot for annual maintenance and repair costs.
This rule is slightly more consistent than the 1% rule because it's directly related to the size of the home. Keep in mind, however, that market prices for contractors and building materials can vary significantly from region to region.
Using this logic, if you have a 3000 square foot home, you should set aside $250 a month or $3000 per year in anticipation of needed maintenance.
Rent Rate Reserves Rule
This is a common sense approach for owners to set aside between 10-15% of owner distributions received for ongoing and unexpected maintenance purposes.
Using this logic, if your home rents for $3,000 per month, you should be setting aside $300 - $450 a month for expected repairs.
The Blended Approach
One way to hedge a bit is to blend the various methods. Using this logic, you would calculate all of the previous three rules of thumb (1% rule, Square Foot Rule, and Rent Rate Rule) and then average them out.
Regardless of your method for estimating annual maintenance costs, some conservative landlords might then add 10% for each factor such as age of the home, weather, overall condition, etc.
It is reasonable to expect that an older home in harsh weather will need that extra attention to maintenance.
Factors that May Influence Your Maintenance Costs
Using the above methods can be a solid way of estimating the maintenance costs for your rental property.
By putting aside either 1% of your property value per year, or $1 per square foot of your property per year, or 10-15% of owner distributions, or an average of the three amounts, you greatly reduce your chances of being caught off guard.
But there are other factors that can influence how much maintenance ends up costing you.
First of all, the age of your property can be a major factor. You can expect a building that’s more than a couple decades old to require maintenance in excess of what’s required from a brand new building.
With an old property, it may be difficult for contractors to find replacement parts, or the property may have been built in a way that is now time-consuming and difficult to work on.
On the other hand, while newer properties should require far less maintenance, it may be more expensive to have work completed in a new, high-end unit than in a humble older property.
Other factors that can have a surprisingly large impact on the cost of maintenance and upkeep include the weather in the area your property is located in, and the local market prices for contractors in the area, which can vary significantly.
The cost of materials can fluctuate and have a large impact on your bottom line as well. For instance, in many parts of North America there’s currently a shortage of lumber that has driven prices to historic highs.
If you need to have work completed that requires lumber—such as having a damaged deck redone—you could expect to pay more than the rules above stipulate.
It’s for this reason that many landlords who own properties that may require extra maintenance may decide to add 10% to the amounts above.
Rental Property Upkeep and Maintenance: The Bottom Line
Whatever method you choose to use in order to predict and prepare for maintenance costs, the most important thing is to be aware of potential issues that can emerge so that you aren’t caught off guard.
A central rule for successful real estate investments is that it’s more affordable to perform regular preventative maintenance than it is to pay for urgent repairs.
Beyond the maintenance expenses associated with normal wear and tear and weather conditions, in certain unfortunate circumstances it can be the case that through negligence or by accident your tenants cause unexpected damage to your property that requires repair.
While you’ll be able to mitigate the risk of such expenses by creating comprehensive leases that outline the responsibilities of each party, and by collecting a damage deposit, you still may find that particular tenants seem to request more upkeep than others.
In addition, problem tenants can cause further expenses, such as eviction costs, preparing and marketing the unit for new tenants, and more. For that reason, many landlords in the San Diego area decide to enlist the help of a professional property management company to handle management tasks on their behalf.