Preparing for Property Repairs
One of the biggest downfalls many newbie investors make is not planning properly for repair costs to their properties. Maintaining properties can be very expsensive. It can be quite tempting to keep the positive cash flow for yourself, but the smart thing to do is to save it for repair costs in the future. Because without a doubt, you will have problems with your rental units. It doesn’t matter what kind of shape you think your property is in; even if it is in prestine condition, problems happen from time to time. You need to make sure that the budget is in place and you have the proper cash reserves to deal with it.
It is smart to start thinking about repair costs before you actually purchase the property. The most money is made at purchase time. When you start to analyze the numbers for the rental property, be sure to include maintenance and repair issues into the equation. Some major repairs (you did an inspection didn’t you) should be negotiated before you make an offer on the property. If there are big problems, do yourself a favor and get a credit at the closing table. Many times, investors will not adequately prepare themselves for costs associated with maintaining property.
First take into consideration the repairs that are pretty easy to see to the untrained eye. Always look at the roof, it can be a huge expense. If the roof needs replaced, again, try to get a credit at closing to pay for a new roof. Also pay attention to the home’s systems such as heating and air conditioning. Are they at the end of their life? You may have to be replacing these at some time in the future. Be sure to include the inspection report to see what you can negotiate the price of the house down to.
Keep in mind the type of property that you will be purchasing. For example, if you purchase a brick house or building, you naturally will not have to worry about siding issues. If you purchase a condo, you will not have to worry about a roof per se. The type of property can dramatically effect the repair costs.
Smaller properties are easier to maintain than huge houses. I would much rather have a small three bedroom house than a three bedroom house double or triple the size. We try to focus on smaller houses from an investor’s perspective. Big houses can be expensive. You have more expense on putting a roof on, painting the inside and outside. There is more square footage so it it natural to think that it would be much more expensive to maintain.
Also keep in mind the distance of the property from where you live or where you maintenance man will be living. If it takes you 20 minutes or more to get to the property, the added travel expense can really add up, not to mention the amount of time that you will have invested. These small numbers can add up very quickly.
Hiring someone to help you can save you a lot of time, but it is also very expensive. Keep that in mind as well. Be aware of how much time you have to deal with issues at your properties and your skill level as well. It can save you a lot of time and aggravation to have someone do it for you, but you trade that peace and security for cold hard cash.
We have learned through the years to allocate at least 5% of the purchase price allocated for repairs. It is always more than what you think. Problems pop up without notice, be preparead for anything that happens at your properties. Instead of having to worry about your own home, you now will be worrying about someone’s house, because ultimately you are responsible Tired of being a landlord? We will be starting a series in the next few months about how to lease option your houses and rid yourself of the problems of being a landlord. Lease options are a good way for someone to purchase their house and save you from the hassles of being a landlord.
He writes for Property Maintenance and Repairs and Landlords Journal
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