What Maintenance looks like as a Landlord - Investor Insights
What Maintenance looks like as a Landlord - Investor Insights
One of the biggest reasons why people are afraid to invest in real estate is because they're concerned about having exorbitantly high maintenance costs and you know everyone always hears a horror story of some tenant who may be trashed a property and it ended up costing tens of thousands of dollars to fix.
Well, here's the thing first of all on your rental properties you can do a home warranty so that if the air conditioner goes out or a lot of the mechanical systems in the house go out the dishwasher breaks that kind of thing you just pay for the 70 deductible on the home warranty and they come out and fix it or replace it or whatever it's going to take the home warranty is going to run you probably about 500 a year but it's a great insurance plan to say hey I've got this in place if there's major maintenance like a new air conditioner I know I'm not going to end up having to pay $10,000 out of pocket for that the home warranty company is going to fix it for me.
There are some restrictions and caveats to home warranties that's a greater conversation but right now we're just talking about how to mitigate your risk on these cash flow type properties the second thing is if you have a tenant that truly does more than normal damage to the house i'm not just talking like you know it needs new paint and carpet that's normal typical maintenance if you have a tenant that absolutely destroys the property your homeowner's insurance policy as long as you notified them that this is an investor policy will likely cover that damage i've seen several cases where the owner was able to get the damage by the tenants covered through their homeowners insurance policy they paid a thousand dollar deductible but then what they were able to do is completely remodel the property and now they had a property that was much nicer than it was before and they were able to significantly increase the rent over what they had previously been charging another thing is you know a lot of times your tenants are not going to completely trash the property they want to get their security deposit back and so i do think it's a myth that all tenants destroy properties you'll have occasionally tenants that are a little rough on the property and it requires some repair and maintenance oftentimes you're going to have to do things like new paint and carpet in their house that's why i like to look for rental properties that have almost no carpet and that's just sort of part of owning a property so when you're buying it you need to make sure there's enough cash flow on the property to where doing the maintenance makes sense most investors like to factor somewhere between five and ten percent of whatever the annual rent is for maintenance.
So, if you were renting the property out for ten thousand dollars a year plan on somewhere between 500 and a thousand dollars in maintenance I've certainly had times where it exceeded that and I've also had times where I've had a tenant in the property for five years and I never had to do a single thing in five years so it all averages out and over time I think that 5% to 10% rule is very safe and as long as you're using those mitigating factors with the homeowner's insurance and the home warranty policy very rarely are you going to exceed that in maintenance.
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