Question for Landlords

[VladtheImpaler]

I know a bunch of people on here are long-term landlords... I have a question what is your average annual burn for repair/maintenance? Particularly for older house - 1980 or older. Thanks in advance.

[GomerPile]

An old family friend of mine told me this before we began. If 70% of the rent cant cover all fixed expenses(mortgage, insurance, taxes, utilities*, condo fees), its not a worth while investment. That leaves 30% for maintenance and vacancy.

It forced us to look harder at every investment we have made, and we bumped it 80% for things like townhouses where much of the exterior maintenance is covered by condo fees.

This rule of thumb has worked for us and our level of risk.

[VladtheImpaler]

Originally Posted by GomerPile

An old family friend of mine told me this before we began. If 70% of the rent cant cover all fixed expenses(mortgage, insurance, taxes, utilities*, condo fees), its not a worth while investment. That leaves 30% for maintenance and vacancy.

It forced us to look harder at every investment we have made, and we bumped it 80% for things like townhouses where much of the exterior maintenance is covered by condo fees.

This rule of thumb has worked for us and our level of risk.

Thanks, I appreciate the theory. I was curious what your actual spend on maintenance and repairs was, historically, as a share of the gross rent?

[blankall]

I have rented a condo for almost 10 years. Even then, upkeep can be quite significant. Probably at least $2-3k/year on average. Things like garburators, light fixtures, sinks, paint, etc.. will need frequent repair. You can save money by doing some of this work yourself.

I don't think anyone is going to be able to answer your question, as with a 40 year old house, there is going to be a huge variance in upkeep depending on the condition and build quality of the house. If you need a major repair like replacement of a roof, plumbing, or electrical system, you could be looking at expenses in the 10s of thousands. With a 40 year old house you could also be dealing with major repairs to the flooring and walls.

I wouldn't be so much worried about the annual maintenance, as I would with the major, but likely less frequent, repairs.

I honestly would not buy unless you expect the value to the house/land to increase substantially, as the increase in equity would offset even major repairs.

[bizaro86]

Originally Posted by VladtheImpaler

Thanks, I appreciate the theory. I was curious what your actual spend on maintenance and repairs was, historically, as a share of the gross rent?

Maintenance spend isn't mostly related to gross rent. Its mostly related to the size, age, and upkeep of the building.

I own a condo that rents for $1300/month. Exterior and common area maintenance are in the condo fees, and the interior fixtures were all replaced in a reno. I do minimal spending on maintenance (usually $200/year or less, unless it needs paint).

By contrast, my dad owns an older house that rents for the same $1300. Just in preventative items (furnace tune up, etc) he's over that figure, and the big items (roof, windows, etc) aren't covered in the condo fees. I would budget a few hundred per month in that situation, and save it for the bigger ticket items when you are under.

[CaptainYooh]

Originally Posted by VladtheImpaler

...what is your average annual burn for repair/maintenance? Particularly for older house - 1980 or older. Thanks in advance.

There is no good law of averages applicable to one single house for rent, unfortunately. It all depends on your property condition somewhat, but mostly on the quality of your tenants. A few years ago, I've rented a house to the sweetest looking Filipino couple with two young children. Always paid rent on time, so there was no need for me to worry. Until one day a neighbour called and asked me to come by and look at it. The guy was fixing car engines in the basement of the house. The entire basement was covered in oil marks. Plus, they've had six or seven other people living in the house with them seemingly in every corner. It was insane. I've kept their deposit but the repairs were in excess of $14,000. And my lawyer said that suing them will likely result in costs, aggravation and little to no recovery. On the opposite, another renter, a burly roughneck gas-fitter working shifts in Fort Mac left the house better than it was when he moved in. He even replaced basement berber carpet with new one at his costs without telling me, because his dog pulled a few loops. Point is, you never know who you get until they move out. it is impossible to predict the average spend.

An old house will need a new furnace and a new water tank at some point - that's $15,000 give or take. New roof - $5,000 to $10,000 depending on the roof size. New windows, perhaps? How do you allocate this capital spending on average? You don't. When the furnace goes, you say the f-word and replace it...

A much better predictor is net operating income (NOI) before financing, which should yield 5%-6% annually. Even better indicator is return on equity invested after financing (ROE), which should be closer to 10% annually if you property is performing well.

Large residential apartment landlords use repair/maintenance allowance of $2,500/unit/year to $5,000/unit/year in their rental pro-forma depending on the age, condition and built-form of the building (i.e. wood-frame vs. concrete). Newer properties tend to go on the lower side of that range.

[Fighting Banana Slug]

I will echo the sentiment of the previous posters. I own an older bungalow which I rent.
Regular maintenance costs can be fairly minimal, a few hundred bucks for mulch, occasional paint project, furnace filters etc. The fact that it is an older home doesn't really factor into it much.

The real cost, and taking the venture from profit to loss, are the larger ticket items. I have had some fairly major electrical work required, I had a pipe burst at one point and those items were several thousand to fix. I suppose one could budget for things like water heaters and furnaces, but the older homes are tougher to gauge on some of these big ticket items.

I don't regret renting the house, but it certainly isn't free money. We have taken some losses over the past few years and I would probably be better off taking the equity in that home and investing it somewhere else. Still it can be fun and there is still the faint hope of the property appreciating, which was really the big plus on this exercise.