You need to start thinking about repairs before you buy the property. When you’re running the numbers and evaluating the potential investment you need to take repairs into consideration. Most investors will naturally consider outflows like mortgage payments, insurance, fees and taxes, but many fail to make an allocation for the repairs that will need to be made on the property.
Some of the repairs can be foreseen. How old is the roof? You can probably predict more or less when you’ll need to replace it. How about the air conditioning system? Or the carpeting? Some items have a natural lifespan and you can predict when these replacement costs will hit.
Other items aren’t so predictable. Over the past few years I’ve had a pretty good experience with repairs in the rental properties that I own, but I have had a few unscheduled problems pop up, to include a leaky skylight, a bathroom mold infestation, and a renegade tree root that broke into an underground pipe. So a rule of thumb that I use is to simply budget an annual expenditure of 1.5% of the property’s value for repairs - meaning that on a $100,000 property I expect to spend around $1,500 per year. Sometimes I’m over, sometimes I’m under, but on average it more or less works out. Once a repair is necessary and it’s time to pull out your checkbook, make a point of getting to it quickly. Be realistic about what you can do yourself and when you need to get a professional on the job. Looking back I can remember more than one instance in which I thought I’d be frugal and tackle a job myself, but would have actually saved time and money by getting an expert to handle the job.
The Author: Chris Smith is a real estate investor, founder of an online reference for investors and real estate professionals and has published articles in Corporate Finance Magazine, Euromoney, and the Business Journal Network. More about Chris Smith.
