As a landlord, an essential part of your role is to ensure the upkeep of your rental property. You are responsible for maintaining your property in a habitable and safe condition.
It implies dealing with everything, from routine maintenance to emergency repairs – a financial aspect that requires prudent budgeting.
Budgeting for property maintenance may seem daunting, but it is absolutely essential. In this guide, we’ll show you the importance of budgeting for house maintenance, while providing an estimate on how much you should set aside as a landlord in Australia, and why.
Factors to Consider When Allocating Funds for Property Maintenance
As a landlord in Australia, it’s crucial to set aside a portion of your funds for the annual maintenance costs of your rental property. A recommended figure is around 1-4% of the property’s value each year. However, the specific figure you choose will ultimately depend on several factors, including:
- Age
- Size
- Overall condition of the property.
For instance, older properties or those with larger square footage might require a higher maintenance budget.
In addition, it’s a good idea to earmark a certain amount from your monthly rental income. This practice will ensure you can cover any unexpected maintenance costs that might arise. Furthermore, keeping meticulous records of all expenditures will help you monitor the overall condition of your property and come in handy for tax deduction purposes.
Several other elements also come into play when budgeting for maintenance costs. These include the type of property, whether a single-family home, townhouse, or multiple-unit building, as each offers unique maintenance challenges.
A Breakdown of a Landlord’s House Maintenance Budget
Taking all the above factors into account and allocating funds accordingly, a typical maintenance budget might look something like this:
Planned & Routine Maintenance: This is the area that caters to regular, predictable tasks such as painting, carpet cleaning, lawn mowing, and HVAC servicing. Landlords should budget about 20% of their revenue for this category. If your rental income is $1,500 per month, that implies you should reserve $300 for routine maintenance.
Unexpected Repairs: When accidents happen, or things simply break down, this is your failsafe. Budgeting around 30% of your revenue for this category is a good starting point, meaning you would set aside $450 from that $1,500 rental income.
Capital Expenditures: This is the big stuff, like replacing a roof or upgrading appliances. Landlords need to anticipate and plan for these costs, which average around 10%-15% of the rental income. On a $1,500 income, this would equate to $150-$225.
Emergency Reserve: It’s crucial to always have money set aside for emergencies that could place significant stress on your budget. This can include a major maintenance issue, a vacancy or unpaid rent. Aim to reserve at least 10% of your rental income for this category, or $150 in our example.
The frequency and cost of each maintenance task will differ depending on numerous factors, including the age and condition of the property, the weather and geography of the location, and the type of tenants. So, landlords need to assess their property individually to ensure they allocate realistic funds.
Adjusting Your Rental Property Maintenance Budget over Time
No maintenance budget is set in stone. As a landlord, you need to reassess your budget regularly to ensure it accurately reflects the maintenance needs of your property and accommodates any changes or increases in costs.
It’s a good idea to re-examine your budget at least once a year or after any significant repair or maintenance event.
Common Maintenance Costs Faced by Landlords in Australia
Maintenance costs for rental properties often fall into two main categories: routine maintenance and major repairs.
1. Routine Maintenance
Routine maintenance, as the name suggests, constitutes tasks that are performed regularly to preserve the property’s condition and uphold its value.
You can use this list as a seasonal home maintenance checklist to get you started:
- Garden upkeep
- Cleaning gutters
- Paint touch-ups
- Test smoke alarms and replace batteries
- Check the plumbing system regularly and replace any broken plumbing fixtures
- Inspect sink drains
- Service the heating system regularly
- Service all cooling systems annually (at the least) or fix frozen pipes
- Repair and replace hot water systems and the water heater when they break or need servicing
- Provide fire extinguishers (if required)
- Carry out a pest inspection if there’s an infestation
- Inspect electrical cords
- Replace broken light bulbs before the tenant moves in
- Ensure the garage door works or can open and close
- Deep clean the carpet in-between tenants if not already done by the tenants themselves (they should pay for any damage through their bond)
- Replace broken shower heads
- Seal cracks leading to poor insulation or further damage
- Install carbon monoxide detectors if needed.
2. Major Repairs
Major repairs typically encompass elements of your rental property that have a longer lifespan but may eventually need replacement or complex fixes.
These can include the property’s roof, air conditioning, electrical, plumbing, and other structural elements. Ensuring these elements are well-maintained and upgraded as necessary is vital for the long-term viability of your rental property. This helps to prevent lower rental rates due to undesirable aspects and higher maintenance costs in the long run.
However, you may encounter a real challenge when estimating the cost of such repairs because different factors like the age and condition of your property or unexpected problems can cause these costs to fluctuate.
Even so, a good rule of thumb is to set aside 1% of your property’s value per year for these types of repairs. For instance, if your property is worth $300,000, allocate $3,000 per year for major repairs.
Remember, it’s not about spending this sum every year but making it available if necessary. Some years, you may not need to perform any major repairs, and that money can continue to accumulate for future needs. But if your property does require a costly repair, you will be financially ready to handle it.
Maintaining the Property’s Exterior
Besides the interior, the property’s exterior requires its own maintenance. This includes gardening, landscaping, cleaning the gutters, and repairing any external building damages like faulty roofing or chipped paint. Regular maintenance of the property’s exterior enhances its aesthetic appeal to potential tenants and prevents serious damage in the future.
Pest Control
Investing in pest control is another essential aspect of property maintenance. Whether it’s dealing with a small ant infestation or a larger pest problem like termites or rodents, it’s important to handle these issues promptly. Failure to do so can lead to extensive damage that can be expensive to remedy, let alone the potential health risks to your tenants.
Climate Influence on Maintenance Costs
The climate in which your property is situated will also affect the types of maintenance required and costs. For instance, properties located in tropical areas might need more frequent pest control and measures to prevent humidity damage, while those in colder regions might require regular roof and gutter checks for snow damage.
Given that some areas of Australia are hotter than others, you’ll also need to consider getting your air conditioning system serviced regularly to keep tenants happy and comfortable. This comes as part of seasonal home maintenance that most landlords across the country should expect.
Planned Vs. Unplanned Costs
While preventive and routine maintenance like cleaning, minor repairs, and regular service of systems make up planned costs, unplanned costs can emerge from unexpected repairs and replacements. While these costs can seem burdensome, investing in preventive maintenance can help reduce the frequency and expense of unplanned maintenance.
Building an Emergency Fund
One key part of smart property management is planning for the unexpected. As a landlord, it’s almost inevitable that you’ll face unplanned expenses due to sudden maintenance needs or repairs. Whether it’s a leaking roof or a broken air conditioning system, emergencies can significantly affect your profit margins if you’re unprepared.
Benefits of an Emergency Fund
Establishing an emergency fund is crucial. This is a dedicated amount set aside exclusively for unexpected property utilisation expenses.
The benefits of maintaining an emergency fund include:
Financial Security: The fund gives landlords a sense of security, knowing they can cover unforeseen situations. Without one, you could find yourself in a financial hot spot, potentially disrupting the daily operations of your rental property.
Prompt Repair Works: Emergency funds allow you to carry out necessary repairs as soon as possible. This is crucial because promptness in resolving issues keeps tenants satisfied and prevents minor problems from escalating into major expensive repairs.
Smooth Operations: A safety net in the form of an emergency fund enables you to operate your properties smoothly, reducing tenant turnover and maintaining property value.
Lower Stress Levels: Property maintenance and unexpected issues can cause stress for landlords. An emergency fund alleviates this stress, offering peace of mind that you are prepared for any contingency.
By setting up an emergency fund and maintaining it regularly, you invest in risk management to protect your properties, fund, and overall business. While predicting the exact costs of future repairs is challenging, a well-funded emergency scheme can mitigate financial difficulties and help sustain your property rental services.
Frequently Asked Questions
What Happens If You Neglect Your Property Maintenance?
One aspect of property maintenance that can’t be overstated is its profound impact on the property’s value. Neglecting maintenance tasks, small or big, is a cost-effective decision in the short term. However, failure to address these issues can gradually result in costly damage requiring extensive repairs.
Damage not only drains your finances when you eventually decide to call in experts for repair, but it also negatively affects the value of your property. Prospective tenants or buyers are likely to pay less for a visibly run-down property or one that has a known history of maintenance neglect.
Plus, if your property earns a reputation for being poorly maintained, this may deter potential renters from the market, leading to longer vacancy periods.
Are there any legal requirements or regulations regarding property maintenance for landlords in Australia?
Yes, there are legal requirements for landlords in Australia to maintain their rental properties. Under the Residential Tenancies Act, a landlord is obligated to ensure that the property is in a reasonable state of repair, fit for the tenant to live in, and complies with all health and safety regulations.
This includes regular upkeep, swift responses to requests for critical repairs, ensuring all installed appliances are in safe and working condition, and more. Failure to meet these obligations could result in legal consequences, such as fines or being ordered to compensate the tenant.
Are there any resources available to help landlords estimate maintenance costs?
Consulting with local real estate professionals, contractors, and property management companies can provide valuable insight into local cost norms. Certain forums and online platforms, such as landlord associations and real estate investor groups, can also provide useful advice and guidance.
We also highly recommend investing in landlord insurance to help mitigate unexpected costs down the track. Contact us for more information on how this can support your needs as a property investor.
Is it better to hire contractors or do maintenance work yourself as a landlord?
Whether to hire contractors or do the maintenance work yourself depends on several factors. If you’re handy and have ample time, DIY maintenance could save you money.
However, for more complex tasks and larger properties, hiring a professional contractor can ensure the work is done effectively and properly, meeting all regulatory standards. Ultimately, the key is balancing costs with the quality of work performed to maintain the value and safety of your property.
Are there any tips for reducing maintenance costs for rental properties?
Definitely, there are several strategies landlords can adopt to reduce maintenance costs for their rental properties.
- Conduct inspections to identify issues before they escalate into major problems.
- Invest in quality materials and appliances. They may cost more upfront, but they tend to last longer and require less repair.
- Consider preventative maintenance practices such as regular plumbing checks, appliance servicing, and pest inspections.
- You can also use long-lasting, durable finishes for walls, floors and countertops that withstand wear and tear.
- Finally, fostering good relationships with trustworthy contractors can lead to discounts and fairer prices. Always remember that keeping your property well-maintained is an investment in the long-term profitability of your rental property.