Six Tips For Accurately Estimating Rental Property Maintenance Costs
As a property owner or independent landlord, you want to keep a lid on your property’s maintenance costs. The same is true if you’re a property manager entrusted with one or different real estates. Either way, property maintenance costs are inevitable and require careful planning by everyone involved to avoid negative cash flow. It might sound complicated, but the good news is that with an effective plan, you can create a robust budget that foresees typical or unpredictable costs. A plan not only shields you from nightmarish maintenance costs but also provides a roadmap for proactive maintenance.
But how can you accurately estimate rental maintenance costs? Below we provide six essential tips to help you along the way.
Tip # 1: Understand the basic maintenance percentage rules
A general rule is to allocate 1 percent to 3 percent of the property’s value towards yearly maintenance. So if the property value is $300000, you’ll budget for $3000 to $9000 for annual maintenance or $250 to $750 per month. These ranges are a good starting point but should not be adopted blindly; they don’t consider many factors, such as emergency maintenance, a possibly negligent tenant who damages property, market variations in costs, or the maintenance service charges in your specific state.
Tip # 2: Carefully plan for different maintenance types
To get the numbers right on your property maintenance costs, you’ll have to do the necessary due diligence to identify relevant maintenance types. Each maintenance type will vary during the lifecycle of the property according to factors that are or aren’t in your control. Some factors to consider are the property’s age, weather/seasons, landscaping, location/neighborhood, tenant turnover/vacancy rates, emergency requirements, and replacing vs. repairing.
The most common maintenance types include routine maintenance, emergency maintenance, and appliance/fixture maintenance. Routine maintenance can be weekly, monthly, quarterly, annually, or seasonally. It consists of both internal and external maintenance activities that take preventative steps to avoid a property losing its curb appeal and proper functioning of its installations. In the case of routine seasonal maintenance, these only occur specific times of the year, such as checking the heating and cooling thermostats, tree pruning, removing snow from the property, or checking for frozen pipelines.
Emergency maintenance occurs without warning. Some examples include replacing/repairing a broken appliance or fixing defective plumbing. These usually occur if there is a change in law or if the tenant reports issues with the property. While emergency maintenance might appear challenging to pin down, the good news is that you can avoid it in some cases. How? By keeping a thorough inventory of different appliances and the age of installations, the history of repairs, and possible complaints from tenants, it’s possible to decide whether the faulty asset should be repaired or replaced.
Extra tip:A general rule is to replace an asset if the cost of repairing is more than half the cost of replacing, and its current lifespan is already above half of its expected lifespan.
Tip # 3: Be specific with fixed and variable costs
Fixed costs are costs that rarely change and are predictable to a certain extent. Examples of fixed costs include homeowners association fees, landscaping, cleaning, and upkeep of common areas. Variable expenses are usually unpredictable and require thorough research and careful planning. Examples of variable costs include some types of utilities, painting, and plumbing.
Forecast your cash flow with specific goals from your preventative maintenance plan. By including the various fixed and variable costs and considerations from the other tips we provide, you’ll be able to assess revenue each month and lower risks of negative cash flow.
Extra tip: If there is a homeowner’s association (HOA), you’ll be required to comply with its rules as a landlord or property manager. Check to see what your maintenance responsibilities are to avoid opacity and costly mistakes.
Tip # 4: Combine DIY, in-house, and outsourced maintenance services
Property maintenance differs in complexity; therefore, the type of expertise required can vary from basic to advanced. This variation in expertise gives property owners the possibility to control costs by opting for a DIY route, an in-house task force, or commission the services of a maintenance company. The DIY route is usually suited for light maintenance tasks, such as a minor paint job, fixing leaking faucets, installing small fixtures, changing air filters, and small repairs. In-house and outsourced property maintenance are ideal for both basic and advanced maintenance.
During maintenance cost estimation, it’s essential to categorize the maintenance needed into difficulty and expertise level. This categorization helps to distinguish DIY maintenance that may save cost and where you need to hire more specialized maintenance services.
Extra tip:Don’t get led into thinking that the DIY route will always save money. Sometimes this isn’t the case. Always approach DIY maintenance as a job with a realistic assessment of your skills and not as a hobby. Being a Jack- or Jill-of-all-trades also means knowing when to leave specialist maintenance to experts. You’ll be glad you did to avoid costly maintenance mistakes.
Tip # 5: Don’t get caught off guard with the rental term and security deposits
The rental term of your property may be either short-term or long-term, and both play a critical role in maintenance costs. Short-term rentals usually involve more maintenance; the landlord or property manager will have to check the property and do the necessary internal upkeep to make it ready for the next tenant. But there’s more. You’ll need to act quickly to ensure you have another tenant to avoid vacancies and lost revenue when your tenant leaves. Proper planning and coordination are important at this stage to lower your risk, and you can also opt for long-term rentals; however, it’s essential to comply with state and federal laws in either case.
Long-term rentals require less move-in/move-out maintenance, but this does not mean that property upkeep is less important. Failing to consider your rental term will result in maintenance cost surprises that could cause negative cash flow.
The security deposit from your tenant should comply with federal and state laws. It should ideally be enough to safeguard against maintenance costs due to damages caused by the tenant. While it might be tempting to accept a tenant who provides the needed security deposit upfront and maybe higher, don’t get caught off guard by failing to do the necessary due diligence to conduct a thorough background check that looks into credit, criminal and eviction data. An FCRA compliant report dots the i’s and crosses the t’s to help safeguard your property and reduce maintenance costs.
Tip # 6: Leave nothing to guesswork, be innovative with software packages
Being a landlord or property manager can sometimes feel as if you’re wearing many hats. While you should be a steward for your property, it doesn’t mean that you need to rely on rudimentary try-to-remember-everything methods to keep track of property management and maintenance. To make your life easier, consider offloading some of your memory work to various software packages available on the market that streamline maintenance requests so that you have a bird’s eye view in real-time. The result? You eliminate confusing paperwork and reduce the likelihood of requests falling through the cracks from unhappy tenants later on.
By being able to track maintenance requests, you’re also able to manage and log your maintenance costs effectively. A good software package also makes it easier to see patterns in spending and establish clear, proactive maintenance plans that are cost-effective with minimal disruption to your tenants. The result is that maintenance estimating for single or multifamily units becomes easier and more accurate, thus eliminating the likelihood of costly guesswork that under or overestimate maintenance costs.
For more details, check the list of Property Management Software packages AAOA highlighted in one of their previous posts.
If you’re only interested in tracking maintenance work and associated costs, you can look into CMMS software solutions like Limble that are built for this specific purpose.
Maintenance cost estimation involves many moving parts that intersect at a common point to reach an accurate value. Knowing the details of each property and the types of maintenance needed for upkeep requires more than covering the basics of pruning trees, checking for faulty faucets, installing smoke or carbon dioxide detectors. It also requires knowledge about the remaining lifespan of appliances or fixtures and accurately identifying maintenance frequencies to fulfill your responsibilities as a landlord.
Accurately estimating maintenance costs is essential not only for bookkeeping but also to identify strategies to avoid negative cash flow. When you consider the six tips provided above, you’re closer to knowing what to expect and not be taken off guard by high maintenance costs.
Bryan Christiansen is the founder and CEO at Limble CMMS. Limble is a modern, easy to use mobile CMMS software that takes the stress and chaos out of maintenance by helping managers organize, automate, and streamline their maintenance operations.
You can contact Bryan at [email protected]