How much do you calculate for maintenance ?

[Orkibi]

Hi guys

jus wondering when doing the sums , how much maintenance to take for average 3b house in a reasonable condition ?

thanks
H

[Propoholic]

Hi Orkibi

Have a look at thread:- 'NZ Houses need serious fix-up'

[JohnL]

One way to look at it is to have two budgets. One for routine maintenance and one for major maintenance. It helps to clarify in your mind what you need to allow for from a cash flow view point.

If you can't easily fund the major maintenance items when they do occur then it would be prudent to put money aside each year, even it doesn't get spent that year.

You could argue that the depreciation allowance on your chattels is your major maintenance provision, so put that amount aside each year although I don't know how acurate that would be.

Once you have a large portfolio, you wouldn't have to worry so much as you could just ensure you are doing up one or two houses a year and control it that way.

When I started, all my houses were new or recently refurbished. I had a very low maintenance bill for the first five or so years, then the bigger bills started to come in!!

John

[crombie]

Hi,

I think you have to consider closely the costs of maintainance involved when it comes to residential property investment. I am in the process of having a house paint on a 150sqm 3 bed unit which is costing $6900 with scaffolding, also the balcony and deck needed replacement, which I did own labour on, but materials cost $600
Also spent $900 on a window replacement in another unit, which needed scaffolding. The costs can go on and on.
I dont want to put you off, but I think that some people have a very over optimistic view on what it actually costs to run and maintain a property. They also seem to fail to analyse this in calculating their net returns on the investments and seem fixated on tax deductions. You still have to come up with the money to spend on the maintainance and this is important when you consider your risk and return. Two of our rentals were built in the late nineties, so are fairly modern, but still require maintainance upkeep and the other is a 1970 unit that needs quite a bit of work, hence the paint job.
I'm no expert, but in my opinion, look closely at how much work your property may require, as it is not a passive investment. I think $3500 p/a would be a start point.

[Orkibi]

WOW.. $3500 pa , for ane property? or portfolio of 10 PI?

[Josko]

Good one Orkibi, are you seriously suggesting that you can get away with $350 per property per annum, no not 10 it is $3.5k each. However this is an average and you should have this money set aside as some of the more major upkeep tasks like repainting the exterior occuring during the lief of the property.

I am sure you have read this thread which gives you good examples of the type of maintenance that gets done on a property...

http://www.propertytalk.com/forum/showthread.php?t=8128

[whitt]

I agree with everyone else.
Over the life of property your repairs and Maintenance will most likely average 3-4k per property.
If it is new or recently renovated it may be lower initially but things like roofs will still need fixing long term.

It is interesting to note that some property finders still advertise repairs and maintenance at $500 PA. This in my opinion is deceptive and irresponsible.

[xris]

This in my opinion is deceptive and irresponsible.

Agree. But then I always have, and sometimes not been popular for saying so.

I cannot help but wonder if this sort of discussion isn't just the early stage of a more general 'back to basics' and 'told you so' type of discussion which will now develop as the euphoria of easy money generated by rampant capital appreciation starts to falter and even retreat.

cynical xris

[whitt]

Here is one example of potentially misleading repairs and maintenance in a currrently available deal.
It shows in year 8 an estimate of $615 PA, this may be a little short of the mark I suspect.

[SuperDad]

Oh no, here we go. Along comes a topic that brings out my dark side. And this just when I was having such a good weekend - everything has been amazing.

The thumbnail Whitt has posted looks exactly like a printout from RevIQ, the RM software. Now, like xris I have been somewhat unpopular for being critical of the maintenance allowances employed by RM. I stand by my earlier claims that their figures are likely to mislead. This kind of marketting is, as Whitt so rightly points out, deceptive and irresponsible.

Here is an excerpt from an earlier thread, where I questioned a maintenance budget from a RM deal:

I’d like to draw your attention to your advertised deal # 1216. That 12 unit property has a valuation of $1,180,000, and an annual projected income of $121,680. Yet the figure allowed for maintenance is only $2000. Keep in mind that the depreciation claimed in Year One for that property totals in excess of $51,000. Some of this depreciation (although not all) will reflect actual wear and tear on the property, as would be expected. I don’t think that it is realistic to allow only $2000 for annual maintenance on that property.

But I could be wrong. If I knew that there was a transparent formula that was used across all of your deals to calculate maintenance, I would feel reassured that the figures I was viewing in the Full Cash Flow Reports were realistic figures.

I won't post a link to the thread I have taken this from. But here's some context: I was asking whether RM could back their claim that they employ "investment formulas commonly used by property investors". I asked whether they could publicise those forumlas - to date, they have not done so.

I must say that I am dissappointed that RM are still marketting in this fashion. RM are on public record as acknowledging that their advertsing could be misleading:

We acknowledge that the advertisement in question could have misled customers.

RM have also stated that they have now:

...appointed a person to audit all property deals web site information.

The source for my quotes is: http://203.152.114.11/decisions/exte.../decisions.htm

Click on "2006 decisions" and scroll down to decision 06/228.

So given that RM claim to have changed their spots, why are they still acting like a "deceptive and irresponsible" leopard?

Paul.

P.S. Let's have a sideline bet on how long it takes for this thread to be locked.

[Orkibi]

OK , just to make sure i got it right.
you'e talking about putting aside every year approx 3.5k for maintenence,
Is it affordable without claiming depreciation?
or only if your PI is extremely positive geared /cashflow.

thanks for the replies.
Orkibi

[Orkibi]

Thanks IVI for that link..
H.O

[Monid]

Paul, I think you are getting to like moderation

Orkibi, the figure of 3-4 thousand is pretty standard, we mix it up a bit in that we add an extra $1000 per revenue stream for our multideweling properties. Our reasoning is that the big expenses come from structural issues (ie roof & painting) which affect the entire property, but more tenants means more wear and tear...

JohnL's point is vital it makes sense to have around $10000 cash on hand available for any emergencies that pop up, that or have a line of credit for this much. If something goes wrong then you want to get it sorted asap.

David

[Monid]

OK , just to make sure i got it right.
you'e talking about putting aside every year approx 3.5k for maintenence,
Is it affordable without claiming depreciation?
or only if your PI is extremely positive geared /cashflow.

thanks for the replies.
Orkibi

Yep thats about the size of it. Though personally I'd stop putting money aside once I had reached about the $10000 mark. (This is another question which has been discussed awhile back but I can't find the link, how much of a cash reserve should you have... Help anyone?)

Depreciation can certainly reduce the pinch of it, but ideally the PI is positively geared enough to take care of it...

Alternative plans would be to either follow a negative gearing route (Not my favourite but some people like giving money away) or to have some other strategy which increases your cashflow, or in the short term will bring in significant lump sums of cash which can then be used to pay down your mortgage increasing your cashflow...

David

[whitt]

Yes building up available cash on hand is a great strategy to help cope with extra maintenance costs. On one of my property I put aside a little regularly for a exterior paint job that I knew would come up in 12 months time.