Every property needs maintenance, you must understand how to budget for maintenance. The renter’s damage deposit is for just that, damages. It is not for routine maintenance, It is not for wear and tear. Things like carpet replacement when it has reached its depreciated lifespan, appliances, painting, cleaning, new windows, kitchen cabinets, new roof, etc.
Plan on spending 10% of your rents, at a minimum, for maintenance. If your rent is $1,000 per month, you should be setting aside, or planning on spending at least $1,200 per year to maintain your building, over and above spending your renter’s damage deposit. If you are not spending that amount, you are deferring maintenance, and any profit or cash flow you are experiencing is just a result of deferred maintenance. This deferred maintenance will continually ‘eat’ away at your building until you have a major repair, and no money to pay for it. You then begin the downward spiral towards lower quality renters that will live in a deferred maintenance building, and eventually will hang the ‘out of business’ sign up on your property.
While you are allocating your budget, do not forget to allow for a vacancy expense and management fees. Even if you manage your building yourself, you need to get paid to do it. If you are not figuring on these expenses when you calculate your Return on Investment (ROI), you are going to be disappointed when you attempt to cash in. Land lording is a tough, high risk, business. If you fail to plan, you plan to fail. Use some tried and true methods, and you will succeed.
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What do you think of this method? Do you know anyone who has created profit at the expense of deferred maintenance.