Owning rental property can be a lucrative investment, but it comes with its fair share of responsibilities. One of the most critical aspects of managing a rental property is ensuring it remains in good condition. This means dealing with both expected and unexpected maintenance costs.
But which maintenance expenses are common for rental properties? How do you keep track of them, effectively budget for them, and make the most out of your investment?
Here we'll explore the ins and outs of rental property maintenance expenses so that you're prepared for emergency repairs, can maintain a good monthly rental income, and can secure high-quality tenants.
Understanding Rental Property Maintenance Expenses
Rental property maintenance expenses are an essential aspect of managing properties. These costs help ensure your property stays in good shape so that it maintains its value and attracts good tenants.
By planning and budgeting for these expenses, landlords can prevent further damage to the property, control costs, and enjoy a steady flow of rental income.
However, predicting the exact costs related to routine maintenance can be difficult. Many factors, such as the property's age, size, location, and appliances, can affect operating expenses. Understanding the different types of annual or monthly maintenance costs can help landlords anticipate and budget for them effectively.
What Are Rental Property Maintenance Expenses?
Rental property maintenance expenses can be divided into two categories: fixed and variable.
Fixed expenses are those that occur regularly, such as monthly or yearly. These could include landscaping and power washing. Meanwhile, variable expenses are costs that arise while managing the rental property over the long term. These expenses include exterior paint, roof replacements, and appliance maintenance.
Additionally, landlords and property managers must factor in expenses related to tenant turnover. This includes getting the property back up to rent-ready standards, which often involves cleaning and making minor repairs.
It's important to note that some restoration costs may not be covered by the tenant's security deposit. Be sure to reference your lease agreement and any local laws or regulations regarding the coverage of security deposits.
Why Is It Important for Landlords to Plan for Rental Property Maintenance Expenses?
Rental property maintenance should always be taken seriously, as neglecting it can result in costly and extensive repairs down the line.
Whether interior or exterior, maintenance neglect is easy to see. It harms curb appeal, reduces property value, and can deter potential tenants from applying for your rental. This can result in long vacancy periods without rental income.
Moreover, landlords should be aware of their responsibilities regarding landscaping. Unmaintained properties may go against local laws or homeowners' association rules. In such cases, landlords are responsible for covering the landscaping expenses.
Budgeting for these rental property maintenance expenses, including establishing an emergency fund and handling tenant-related damage, can help landlords stay prepared for unexpected expenses and keep their investment in good standing.
Common Maintenance Expenses for Landlords
As a landlord, it's essential to be aware of the common maintenance expenses that come with managing a rental property. Some of these expenses include repairs, landscaping, pest control, roof and HVAC upkeep, and other routine maintenance tasks. By familiarizing yourself with these common expenses, you can better estimate future costs and budget accordingly.
Keep in mind that each property is unique, so the specific maintenance costs will vary. However, understanding these common expenses can provide you with a solid foundation for managing your property's costs, ensuring your rental property remains in good condition, and preventing tenant turnover.
Repairs are an essential aspect of rental property maintenance. They help preserve the property's value and prevent further damage and more costly repairs down the line.
For example, by keeping up with maintenance for appliances like dishwashers and laundry machines, you can elongate the lifespan of your systems and put off the need for a sudden complete replacement. Generally speaking, these types of repairs are not the tenant's responsibility. Unless a tenant has caused damage, landlords are responsible for this type of regular maintenance.
Other examples of typical repairs for landlords and property managers include fixing water leaks, sealing doors and windows, patching worn carpets, replacing tiles or roof shingles, and repairing broken landscape sprinkler heads.
Landscaping is an essential aspect of maintaining a rental property's curb appeal and complying with local laws or homeowners' association rules. If a property's landscaping fails to meet the required standards, landlords are responsible for covering the landscaping expenses.
Landscaping can include lawn care, tree trimming, planting, and other tasks that keep the property looking well-maintained and attractive to potential tenants.
These tasks may change depending on the season and climate. For example, for a property owner in Florida, landscaping is a constant expense. In Michigan, landscaping is less relevant for much of the year. However, in colder climates like Michigan, those operating expenses may be replaced by others, such as snow removal.
Pest control is another crucial aspect of rental property maintenance. It involves spraying pesticides around the property's exterior and taking other measures to prevent insect or vermin infestations.
Sometimes pest infestation occurs anyway. In these instances, addressing it quickly is necessary to ensure the safety and health of your tenant and the property's stability.
Pest control expenses vary. Depending on the severity of the infestation and the type of pests, the costs can range from monthly to annual treatments. By being proactive with pest control measures, landlords can avoid more extensive and costly treatments in the future and maintain a safe and healthy living environment for their tenants and neighbors.
Roof and HVAC
Regular maintenance of big-ticket items like the roof and HVAC systems is vital for maintaining the property's overall condition and ensuring energy efficiency.
Considering how renters are usually responsible for paying for utilities like electricity, having an energy-efficient property is a great way to keep tenants happy. Nobody wants to live in a hot home during a heat wave or a chilly apartment during a snowstorm either, so staying on top of HVAC system and roof maintenance is also important for preventing tenant turnover.
That said, expenses associated with roof and HVAC maintenance can vary depending on the type of system and the extent of the maintenance required, including labor, materials, and equipment.
Proper planning and budgeting for roof and HVAC maintenance are essential for landlords. By allocating a portion of their rental income each month for these costs and setting up an emergency fund, landlords can ensure they are prepared for unexpected expenses.
Other Maintenance Expenses
In addition to the common expenses mentioned above, there are other maintenance expenses landlords should consider. These can include plumbing and electrical repairs, waste management, common area maintenance for hallways and lobbies, and cleaning for carpets, draperies, and window blinds. Property management fees may also be applicable, for those who have property managers.
Depending on the location, property owners and managers should keep geographically unique features in mind for their budgets as well. For example, sump pumps, fireplaces, radon mitigation, and mold testing may be relevant.
By budgeting for these additional expenses, landlords can ensure they have the funds to keep their rental property in prime condition and avoid potential problems down the line.
Estimating Rental Property Maintenance Costs
Estimating rental property maintenance costs is crucial for landlords to plan and budget effectively. To estimate these costs, landlords should consider routine, seasonal, and appliance costs.
Routine maintenance costs involve regular expenses required to keep the rental property in good condition, such as cleaning, pest control, and minor repairs. Additionally, landlords should consider the monthly costs of maintaining the property's exterior and common areas, such as landscaping and garbage and recycling collection.
Seasonal maintenance costs involve expenses that vary depending on the time of year, such as snow removal, gutter cleaning, pipe inspections, and other weather-related tasks.
HVAC maintenance can also tie into seasonal expenses. It's good practice to have your HVAC systems serviced before the major seasons. Have your air-conditioning system checked before summer and your heater checked before winter to detect minor problems early and avoid emergency repairs in the middle of a heat wave or snowstorm.
In general, these costs can be estimated by considering the property's location and the types of seasonal maintenance required throughout the year.
Appliance maintenance costs involve expenses related to maintaining appliances like refrigerators, ovens, and dishwashers. These costs can range from $50 to $500 depending on the appliance and the repair needed.
To budget for appliance upkeep, landlords should consider their age and condition and the likelihood of repairs or replacements being needed. Like with seasonal costs, however, some appliance maintenance also depends on the property's location and climate.
The average lifespan of a laundry machine is 10-13 years no matter where you are in the U.S. However, the lifespan of an A/C unit or heater depends on where you are located. If you are using air conditioning all year, your A/C unit will have a much shorter lifespan than if you are alternating between it and a heater for half of the year each.
Keep these factors in mind when making your budget.
How to Budget for Rental Property Maintenance Expenses
Once you have routine and potentially unexpected maintenance costs in mind, it's time to make a budget. Establishing an emergency fund and handling tenant-related damage are essential steps in preparing for these expenses.
By setting aside a portion of their rental income for maintenance costs and using tools like spreadsheets or rental property accounting software to track expenses, landlords can effectively manage their property's maintenance costs and make informed decisions about their investments.
Establishing an Emergency Fund
An emergency fund is key when it comes to budgeting for rental property maintenance expenses. It provides a financial safety net for landlords and property managers in case of unexpected expenses or financial emergencies.
Setting up an emergency fund is simple. First, decide how much you want to save, determine how much you can put away each month, and set up an automatic transfer from your checking account. Lastly, keep your emergency fund in a separate, easily accessible account.
By establishing an emergency fund, landlords can cover unexpected expenses without taking on debt or dipping into their savings.
Handling Tenant-Related Damage
Tenant-related damage is any damage to a rental property caused by a tenant during their stay that goes beyond normal wear and tear. Examples of tenant-related damage include broken appliances, holes in walls, or damaged flooring.
To handle tenant-related damage, landlords should document the damage. Additionally, landlords can deduct the repair costs from the tenant's security deposit to cover the expenses.
However, as always, be sure to reference your lease agreement and look into local laws and regulations to determine whether tenant-related damages actually go beyond normal wear and tear and can be covered by a security deposit.
By addressing tenant-related damage promptly and effectively, landlords can maintain their property's condition and minimize the impact on their rental income.
Tax Implications for Rental Property Maintenance Expenses
Tax implications for rental property maintenance expenses can impact a landlord's bottom line. Understanding the tax deductions available for certain expenses and the considerations for repairs vs. replacements can help landlords maximize their tax benefits, minimize their tax liability, and maintain a good rental income.
By consulting with a tax professional and keeping accurate records of their rental property maintenance expenses, landlords can ensure they are taking advantage of all available tax deductions and properly reporting their income and expenses on their tax return.
Deductible expenses for rental property maintenance include certain materials, supplies, repairs, and maintenance costs. These expenses can be deducted in the same year they are incurred. This differs from improvements, which may require depreciation over several years.
Landlords should be aware of the difference between repairs and improvements for tax purposes. Repairs are fully deductible, while improvements may need to be depreciated over time.
Considerations for Property Maintenance Repairs vs. Replacements
When deciding between repairs and replacements for rental property maintenance, landlords should consider factors such as the cost of the repair, the age of the item, its expected lifespan, and the likelihood of future repairs.
Upgrades and restorations are usually considered improvements, and their expenses may not be fully deductible in the same year they are incurred.
Landlords should weigh the benefits and drawbacks of repairs vs. replacements, taking into account their potential tax implications. When in doubt, you can reach out to a tax professional for guidance.
Estimating and Tracking Maintenance Costs
Estimating and tracking rental property maintenance costs is an essential aspect of property management. Landlords should be aware of the rules of thumb for maintenance cost estimation, understand the importance of proper accounting and record-keeping, and utilize property management tools to track expenses.
By familiarizing themselves with these methods and tools, landlords can better manage their rental property's maintenance costs, anticipate future expenses, and make informed decisions about their investment property.
Rules of Thumb for Maintenance Cost Estimation
Landlords can use the 50% rule, the 1% rule, and the square footage rule to estimate maintenance costs for their rental properties:
- 50% rule: Reserve at least half of your rental income each month for property maintenance, repairs, and other management needs. This rule usually also covers property taxes and insurance.
- 1% rule: Budget 1% of the property value every year to cover maintenance and necessary repairs.
- Square footage rule: Allocate $1 per square foot every year for the property's unexpected repairs and other maintenance costs.
These guidelines can provide a starting point for estimating costs and can be adjusted according to the specific property and its unique characteristics. By utilizing these rules of thumb, landlords can better anticipate future expenses and create a more accurate budget for their rental property maintenance costs.
Accounting and Record-Keeping for Rental Property Maintenance Costs
Proper accounting and record-keeping for rental property maintenance involve tracking expenses such as repairs, maintenance, property taxes, insurance, and other costs related to the property.
Landlords can use spreadsheets or rental property accounting tools to help them keep track of these expenses and maintain accurate records.
Keeping business and personal accounts separate and staying organized with expense tracking can help landlords better manage their rental property maintenance costs, take advantage of available tax deductions, and ensure that are complying with tax laws.
Tracking Expenses with Property Management Tools
Property management tools can be an invaluable resource for landlords when it comes to tracking rental property maintenance expenses and maximizing rental income.
Property management software is one such tool that helps keep landlords and property managers organized with their rental properties. In addition to standard tasks like rent collection, these programs also offers a means to communicate routine maintenance issues, streamline requests, and keep records of expenses.
DoorLoop is an excellent all-in-one software that, among other features, offers a tenant portal for maintenance requests and cutting-edge accounting features. With DoorLoop, you can synchronize your bank within the app, generate financial statements and reports, reconcile transactions, and so much more.
If you're an owner who has a property manager or accountant, you can also make those parties users to access whatever accounting information you're comfortable with and effectively communicate with one another.
Check out DoorLoop's accounting features to learn how you can keep track of maintenance, property taxes, and other costs associated with your rental homes.
By understanding the different types of maintenance costs, estimating and budgeting for these expenses, and utilizing technology to track expenses, landlords can ensure their rental property remains in good condition and maximize its potential. Proper planning, budgeting, and record-keeping will not only help landlords maintain their property's value but also make the most out of their investment.
Frequently Asked Questions
What are examples of maintenance expenses?
Maintenance expenses are an essential part of homeownership and property management. Examples of common maintenance costs include lawn care, plumbing and electrical repairs, roof repairs, replacement of worn-out appliances, and premiums for hazard insurance. Maintaining your rental property will help it stay safe and in good condition for your current or prospective tenants.
What are considered cleaning and maintenance expenses?
Cleaning and maintenance expenses consist of regular costs needed to upkeep a property, such as landscaping, exterior and interior cleaning, garbage and recycling collection, etc. These are necessary expenses that a property owner must factor into their monthly budget.
How do you calculate return on investment?
Calculating rental property expenses is as easy as following the 50% rule, 1% rule, or square footage rule and calculating your return on investment. This is a great way to determine the profitability of a rental property and make sure you are getting the most out of your investment.
How do you calculate rental property maintenance costs?
Calculating maintenance costs is simple: just follow the 50% rule, 1% rule, or square footage rule. For example, the 1% rule states that you should plan for annual maintenance costs to equal 1% of your property's value, so for a property valued at $500,000, the cost would be approximately $5,000 each year. Knowing and planning for these costs will help you ensure your property remains in tip-top shape.
How can I report rental income and expenses?
You can report rental income and expenses on Form 1040 or 1040-SR, Schedule E, Part I. Be sure to also account for any deductions you may be able to take due to repairs.
What are some ways I can keep track of rental property maintenance expenses?
You can use a spreadsheet or a rental property accounting tool like DoorLoop!