Mendell Gosnell explains two ways to budget for rental property maintenance: the 1% rule (set aside 1% of purchase price yearly) and the $1-per-square-foot rule. Property age, location, weather, and rental type all affect costs, which spike unpredictably for things like roofs but average out over time.
Chapters
How much does maintenance cost on a rental property? We're going to go over that right now. Part 2 of this series over— we're going to link Part 1 of the series that we just did, which is what factors affect or determine the cost of upkeep on the rental property. But this series, on this Part 2 of the series, we're going to be going over what should I expect to spend on rentals. Now again, if you— we highly encourage you to watch Part 1 first if you haven't already, only because that will preface this video and kind of help you understand that this is not a black and white rule which everyone should follow. If you've got an older property like we talked about, if you've got one that was in a poor location towards a river that has trees around it, you're gonna have moss. If you have weather issues like we do here in Oregon, if you're by the coast, be expecting the saltwater air to be affecting it. And the type of rental property— those are 4 things that are going to determine it. But this generally is a rule of thumb that investors like to use when determining how much should I set aside for repairs. So rule number 1 is the 1% rule. So if you buy a property, single-family home, for $250,000, the 1% rule suggests that you should save $2,500 a year on your rental for repairs. Does that mean you're going to use and suck up the whole $2,500 a year? No. Some years you may only spend $500. You may have a great year where you're cash flowing a lot. Some years you may spend $4,000 or $5,000, but as a rule of thumb, you need to set that aside every year and it'll work itself out in the long run. You may need to put a new roof on one year and you may seem like you're, for a 2-year stretch, you may be in the red, you know, for a couple years, but overall, generally speaking, the 1% rule suggests that you take 1% of the home's value to set aside. Then there's the square foot rule. Similar to the 1%, this is a $1 per square foot rule. Pretty straightforward and simple. If you've got an 1,800 square foot home, set aside $1,800 a year, roughly. As you can tell, both of these rules are fairly similar. If you were to take the purchase price of $250,000 for an 1,800 square foot home, you're looking at fairly similar rules as far as what cost you're going to get to put aside for rentals, for rental repairs. In general, this video is for you guys to be thinking and getting the wheels moving in your head and wheels turning in your head about what should I save? And the answer is just make sure you're saving. Is it expensive to own a rental property? Yeah, it is. But is it rewarding? Yes, you get tax breaks. There are things that you're able to do with real estate investing you can't do with anything else. You get to depreciate the asset, you get to control the asset, Make changes that you see fit to mess with things to make sure that you're cash flowing. There's a lot of flexibility in it, but the biggest thing, whether you're using a professional manager or not, making sure that you have quality oversight and you know what you're doing. Everything from screening the tenants to preparing for a new roof like we just mentioned in this video. So go ahead and— I would love to hear more about what you guys go through on a daily basis as investors, or what your concerns are as a new investor. What are things that you have done to help prepare for expenses that are maybe unexpected or expected? Please leave a comment below, we'd love to hear what you have to say. Like, share, subscribe, we'd love to engage with you guys and we appreciate your guys' time for taking to watch this. Thank you so much, happy investing, have a great day!
