For Planning Purposes, What Amount of Rental Revenue Should Landlords Generally Budget for Property Maintenance?

For Planning Purposes, What Amount of Rental Revenue Should Landlords Generally Budget for Property Maintenance?

A significant part of managing a rental property is managing the funds you need for maintenance and repairs. Even the newest, best-kept properties still require maintenance, especially when you have renters coming and going.

For planning purposes, how much should you budget for rental property maintenance? While there’s no set amount to keep on hand, as it will vary from property to property, these guidelines will give landlords a general idea of how much they should budget.

1% of Your Property Value

One basic rule is to keep 1% of your rental property’s value saved for repairs and maintenance. As your property value changes over time, you should update this amount to have for both emergencies and wear and tear.

So let’s say your rental property is worth $400,000. That means you should have $4,000 saved for annual maintenance and repairs. 

Although you may never need to spend close to this—or you may spend all of it and more—it’s a good idea to have something saved close to this amount for maintaining your investment property.

One Dollar for Every Square Foot

Another guideline you can use to determine how much to budget annually for maintenance is to save about one dollar for every square foot of your rental property.

For example, if you have a 2,000-square-foot single-family home, you’d aim to have about $2,000 saved for maintenance. However, if you have a 10,000-square-foot apartment building, the amount would be $10,000.

Of course, the amount you budget for maintenance and repairs will also depend on other factors, such as how old your building is, the weather in your area, and whether or not you need landscaping for your income property.

Save About Half of Your Rental Income for Expenses

Other landlords budget about half of their rental income for expenses involving the property. These costs don’t need to be related to maintenance—they can be for property taxes, landlord insurance, HOA fees, and property management fees.

So if your rental nets $1,200 a month, you’d put away about $600 for all these expenses, including any maintenance and repair needs. You may need to budget more or less depending on your specific property.

Common Rental Property Maintenance Costs

If you have an income property for any length of time, you’ll need to update and repair the property as renters come and go. Some of your maintenance costs will go towards regular wear and tear of the unit, such as painting and flooring, landscaping, and waste management.

Other costs will need to be reserved for emergency expenses, such as replacing appliances, fixing the roof, or even water or smoke damage. Remember, it never hurts to have more saved than you need, so erring on the side of caution when budgeting for maintenance costs is smart.

Be Smart About Your Income Property

Making informed decisions about your income property can help you maximize your profitability while reducing expenses. Having money for repairs and maintenance can ensure you have enough capital to properly maintain your investment. Have questions about how else you can maximize your rental property income? Reach out to FAS Management today at (202) 337-5080.

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