Mastering Property Maintenance
Today, I want to dive into a crucial topic for property investors: maintenance and capital expenditures, often known as CapEx. Before we get into the details, if you've been benefiting from these insights, please consider liking, sharing, and subscribing. Your support truly helps us, and if you find value in what I say, feel free to share it or provide some constructive feedback.
Understanding Maintenance and CapEx
Let's start by talking about maintenance and capital expenditures. CapEx is merely a fancy term for the costly items that unexpectedly break or need fixing in your house. Unfortunately, I've noticed that many investors purchase property without setting aside funds for these inevitable expenses.
Consider it like buying a car and not budgeting for oil changes, new tires, or brake replacements. We inherently understand that cars require regular maintenance, but this concept often escapes us when it comes to real estate investments.
Planning for Capital Expenditures
As investors, it's essential to grasp the importance of capital expenditures. You might get as detailed as you'd like, but a general rule of thumb I follow is to allocate around $200 a month. For a more detailed breakdown, I offer my Real Property Profit Calculator on our website. It's precisely what I've used for every property I've acquired.
Here's how you can determine your monthly set-aside for CapEx:
Consider big-ticket items like paint, appliances, flooring, a water heater, an HVAC system, plumbing, windows, and even the foundation—anything substantial for your property. Using a spreadsheet, you can list these items, their costs, and their life expectancies to calculate how much you should save monthly.
Examples:
Paint: $3,500 cost over 5 years = $58/month
Appliances: $2,000 cost over 10 years = $16.70/month
Flooring: $5,000 cost over 30 years = ~$14/month
Water Heater: $1,000 cost over 15 years = $5.56/month
By doing this, you prepare for future expenses rather than being blindsided by costs, like a surprise $15,000 turnover for new tenants.
Avoiding Financial Pitfalls
Proper planning and budgeting for these expenses can prevent you from having to sell your property to wholesalers due to unforeseen financial strain. Many investors fall into a cyclical trap of losing tenants, having decreasing income, and needing to lower rents because they weren't proactive in maintenance planning.
The Key Takeaway
Don't purchase property unless you expect to fix it. Break down your major expenses, plan for them, and ensure you're saving enough each month. If you're looking for a rough monthly figure, $200 has worked consistently for me. It may fluctuate slightly year to year, but it’s a reliable average.
To wrap it up, purchasing rental properties comes with the responsibility of maintaining them. This approach will make you a more informed investor and help you understand your cash flow needs.
