Owning an investment property is an excellent way to earn short term cash flow and long term returns. However, there are ongoing expenses associated with rental properties, and new investors are sometimes surprised at the amount of money they have to spend to keep their property well-maintained.
If you can create a budget and prepare for expenses, you’ll find it’s a lot easier to absorb them.
Create a Rental Property Maintenance Budget
The amount of money you spend on maintenance depends on the age and condition of your property. Creating a maintenance budget requires you to understand the lifespan of all your property’s systems. You’ll want to know how long it will be until you’ll have to replace the appliances, the air conditioning, the furnace, and the roof. The best way to do this is by scheduling annual maintenance and servicing with a contractor. For example, if you have an HVAC technician come into your property once a year and inspect your heat and air system, you’ll know it’s performing well, and you’ll have some idea about when you might need to replace it.
Put Money Aside in a Maintenance Reserve
Put about 10 percent of your monthly rental income aside in a maintenance reserve. This will allow you to have the funds available when work is needed. You probably won’t use that full amount, but at least you’ll have it when something breaks down and needs to be fixed right away. With a maintenance reserve, a major repair won’t require you to do some creative financing.
Document all Expenses and Income
The best way to track your expenses is with documentation. When you work with a property manager, you can expect monthly accounting statements that detail everything your property earned and spent over the course of the month and the year. You need to document every bit of work you do on your property and keep track of your expenses. You’ll need these records accounting at tax time.
Additional Rental Property Expenses
The biggest expenses when it comes to rental property aren’t always related to maintenance. They’re costs like vacancies and tenant turnovers. If you have to file for eviction, that’s going to cost you a lot. A security deposit dispute in court could cost you three times the amount of the deposit. These things can be avoided with the help of professional property management. A professional manager will minimize your vacancies, place a great tenant, and ensure your expenses are kept as low as possible.
If you have any questions about how to plan for your rental property expenses, please contact us at Glendale Property Management.