Have you heard of estimating how much money you’ll need to set aside for maintenance on a rental property? Listed below are a few choice formulas for your estimating purposes. Which formula is your favorite?
- 50% Rule: total operating costs (repairs, maintenance, taxes, insurance) will equal half of your rental property income. So if your property rents for $1,200/mo, you should expect $600 of that to go to keeping the property up and running.
- 1% Rule: maintenance will cost about one percent of the property value per year. So a property valued at $190,000 should cost $1,900 a year to maintain (or $160 a month).
- Square footage formula: Plan on $1 per square foot for yearly maintenance costs. So a 2,200 foot rental should cost roughly $2,200 a year in maintenance costs.
- 5x rule: maintenance costs will average 1.5 times the monthly rental rate. So if your home rents for $1,200, then you should anticipate spending approximately $1,800 a year in repairs.
- Murphy’s Law: anything that can go wrong, will go wrong
While it’s nice to have a rough guess on how much money you should plan on spending on maintaining your rental property, there are just too many variables to accurately estimate. Like the English language, there are exceptions to every “rule.” So use whatever formula you prefer to predict your cost, but keep in mind these two estimates:
- 76% of yearly rental property maintenance and repair costs will be higher than you’ll expect
- 99% of rental property repair and maintenance expenses will be higher than you’ll want
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