Have you been troubled by high maintenance expenses for the last few months and your rental income isn’t covering them enough? As do all landlords, encountering these problems are sometimes inevitable. And we get it. It’s frustrating, sometimes disheartening, and a lot of times makes you question if being a landlord really was a good decision.
If you find yourself in this situation right now, breathe. We’re here to help you out. In this article, let us revisit some of the most popular rules for budgeting maintenance expenses and what you can do in case none of them works in your favor.
How To Budget For Maintenance Costs?
The problem of underbudgeting is more common than you think even among seasoned landlords. There are just so many factors that affect the condition of your home and so many more that affect your financial situation. Nonetheless, rental industry experts have some great advice on how to set a budget for your rental property maintenance costs. Here are four (4) of the most common:
The 50% Rule
The 50% Rule provides that you should set 50% of your monthly rental income for all your property-related expenses. These include maintenance, repairs, taxes, insurance, and other expenses. This is advisable if you aren’t paying for mortgage anymore. Because if you are, your net rental income wouldn’t probably be enough to cover so much expenses yet.
The Square Footage Formula
Next is the Square Footage Formula. This rule provides that you should set aside $1 for every square foot of your property maintenance every year. If your home is 5,000ft2, then you should have $5,000 set aside every year. While this is a good number, take note that this only considers maintenance — not emergency repairs.
As a landlord, part of your tenant’s safety is your responsibility. In case of untoward damages that affect your tenant’s well-being, you’ll need to have them repaired immediately. If you want to follow this rule, we suggest, allocating more than $1 per square footage.
The 1% Rule
The 1% Rule considers the current value of your home. This rule provides that you should prepare a budget of a least 1% of your property value every year for periodic maintenance. If your home is currently valued at $150,000, then you should have at least $1,500 every year to spend on its maintenance.
The 5x Rule
Lastly, the 5x Rule provides that you should expect to pay 1.5 times more than your monthly rental every year to maintain your property. If your tenant is paying $900 per month, you should expect to spend $16,200 a year for their unit’s maintenance.
The abovementioned rules are general. Apart from considering them, you should be attentive to the lifespan, condition, and frequency of use of every part of your home. Which ones need more frequent maintenance? Probably the appliances. Which ones only need maintenance every 5 years or so? Most likely the roof. The bottom line is, don’t treat the rules above as standalone, or you’ll not be getting out of that maintenance trap for a long time.
What To Do If These Don’t Work?
Given that different materials have different lifespans and durability, it’s possible that none of the rules above will ever work for you. If you’ve tried all that you can and you still don’t seem to see a way out of your losing investment, here are the last few things you can do:
Increase Your Rent Price
Unlike other places in the world, there is no law that prohibits landlords in Georgia to raise the rent. Moreover, there are no laws that control when and how a Georgia landlord can raise the rent. In fact, even in the midst of the Coronavirus pandemic, Atlanta rental prices increased by 17%.
If you indeed decide to increase your rent, we recommend that you do so courteously. This means that you have to inform your tenant ahead of time — like two (2) months or so — and explain to them clearly why you are raising your rent (don’t forget to research competitors!). It would also be better to have another contract signed with the new rental rate.
Hire The Best Specialists
Recurring damages may be due to the fact that your solutions are not the right ones. You have to know what’s causing the damages and implement solutions that fix the root cause of the problem as well. Moreover, hire the best specialist you can get to do the repairs and maintenance. Their professional services may be expensive, but at least you have the confidence that they’re going to do the job right the first time and give you long-term solutions.
Sell Your Home To a Professional Home Buyer
Lastly, if none of the two (2) options above will work or are feasible for you, you can also consider selling your home to us at Spire Home Buyers. We can buy your home without evicting your tenants and we can pay you in cash at a fair price. You can use the money you get from us to buy a newer property with lesser maintenance requirements.
Learn more about our process by calling us at (678) 318-1801 or leave us a message through the form below!