Investment properties have ongoing maintenance costs. Here’s more about them.
An investment property could be commercial, residential, or industrial, but no matter what kind it is, it will come with maintenance costs. When approaching real estate investing, you might not immediately understand all the costs that come with it when presented as a passive income dream. However, you can do very well with your real estate investing when you carefully count your investment property maintenance costs from the beginning.
Ways to Estimate Investment Property Maintenance Costs
The 1% Rule
The 1% rule is to set aside 1% of the property value toward the annual maintenance budget. If it is a commercial property, you will need to set aside at least 5% of the annual gross income toward maintenance.
The $1-$2/Square Foot Rule
The $1-$2 per square foot rule is to set aside $1-$2 per square foot for annual maintenance. For example, if your rental property is 2,000 square feet, you would set aside a budget of $2,000 per year for maintenance.
Patterns in Past Maintenance Records
Each property is different, as we will discuss below, so you can also look at previous maintenance records to see the average cost of maintenance per month or year. If the property was well-maintained, then the past records will be a good indicator of what to expect.
Factors That Affect Expected Annual Maintenance Costs
Property Age and Quality
The property’s age and condition will determine how much maintenance you might expect to put into it over the coming years. The older the property is, the more likely you’re going to have to renovate it. The same goes for a property that is in poor condition; the property needs to be presentable, safe, and healthy before any tenants move in.
Climate
The local climate can also affect how the property fares. Mild weather usually means less maintenance, but severe weather could put more wear and tear on it.
Tenant Behavior
Screening your tenants professionally will help you avoid disastrous situations. Even then, the higher the tenant turnover is, the more frequent repairs you may have to make. Commercial properties tend to have lower tenant turnover.
Dividing Maintenance Tasks
How can you budget out investment property maintenance specifically? You can categorize services accordingly:
- Preventative: Inspections and other preventative services
- Ongoing: Lawn mowing, Leaf removal, and other necessary routine services
- Necessary: Upcoming replacements for appliances, roofing, windows, etc.
- Emergency: Emergency repairs, paid by an emergency reserve fund
Trust the Professionals at Clagett Enterprises for Your Realty Needs
If you’re looking for an experienced property management company, the perfect realtor for your property, or a professional to assist you during your purchase of any home, you can rely on Clagett Enterprises. Clagett Enterprises is a full-service real estate company with almost 30 years of experience in the Frederick and Western Maryland area. For assistance with commercial sales, leasing, management, and development and consulting, contact us online or give us a call at 301-665-6009. To meet our team and see some of our beautiful homes, follow us on Facebook and Linkedin.