Maintenance Budget
Plan on spending 10% of your rents, at a minimum, for maintenance. If your rent is $1,000 per month, you should be setting aside, or planning on spending at least $1,200 per year to maintain your building, over and above spending your renter’s damage deposit. If you are not spending that amount, you are deferring maintenance, and any profit or cash flow you are experiencing is just a result of deferred maintenance. This deferred maintenance will continually ‘eat’ away at your building until you have a major repair, and no money to pay for it. You then begin the downward spiral towards lower quality renters that will live in a deferred maintenance building, and eventually will hang the ‘out of business’ sign up on your property.
Vacancy Expense
While you are allocating your budget, do not forget to allow for a vacancy expense and management fees. Even if you manage your building yourself, you need to get paid to do it. If you are not figuring on these expenses when you calculate your Return on Investment (ROI), you are going to be disappointed when you attempt to cash in. Land lording is a tough, high risk, business. If you fail to plan, you plan to fail. Use some tried and true methods, and you will succeed.
Be sure to look at my “Coming Attractions” page and see my upcoming topics.
What do you think of this method? Do you know anyone who has created profit at the expense of deferred maintenance.