Budgeting: What You Need To Set Aside For Repairs And Maintenance

By January 8, 2016Landlord Tips
Budgeting: What You Need To Set Aside For Repairs And Maintenance

One of the responsibilities of being a landlord is paying for repairs and maintenance in a timely fashion. For most tenants, this is absolutely critical and affects their quality of life, yet some landlords leave themselves unprepared.

Ignoring repairs and maintenance can also affect the quality of an investment property as well – leaving small maintenance requests can quickly turn into a bigger and far more expensive problem down the track. Unnecessarily delays in any repairs and maintenance requested by the tenant can also cause a disgruntled renter and, in extreme examples, leave you open to claims at Tribunal.

For investors, this means they will need to have what is called a “buffer”. This is a portion of funds set aside to cover the replacement and repair of items in the home as they age, break and need updating. Having this pool of funds helps minimise stress, but also ensures that everything can be fixed quickly, with little hassle to anyone involved.

But how much do you need to have as a buffer?

The size of the buffer that you want to set aside for your rental is going to vary depending on the age of the home, number of tenants and general wear. Sometimes, things break unexpectedly before their time, while other items can last far longer than expected. There is no exact science to determining exactly how much you need set aside, so always aim to have a little “extra” than your calculations just in case.

Here are several methods used by investors to come up with a rough estimate of the savings required:

Using your depreciation report

One trick to get a quick idea of how much “life” is left in each thing in your property is to consider your depreciation report. If you haven’t used a quantity surveyor for your investment yet, this may also save you thousands come tax-time.

The depreciation report is indicative of how long the Australian Taxation Office expects items in your home to last. This is not an exact art, but suffice to say newer items will last longer than their older counterparts.

The ATO provides a fairly comprehensive guide as to their expected lifespan for the items in your home.

By understanding when the tax laws indicate certain items are likely to need to be replaced, you should have some understanding as to whether items in your home are brand new or near their useby date. If your property is older, you may need more money aside to replace or repair the items.

Problems often occur and some will not require full replacement of the broken item – you may be able to get the issue fixed for cheap.

Rules of thumb

Another way to budget for repairs is to consider the “common investment wisdom” and from existing investors. Commonly cited is the 1 per cent rule, meaning you should save that portion of your property value each year for repairs and maintenance.

For a $600,000 property, this could be $6,000 a year saved as a buffer. While you likely won’t use $6,000 every year, it’s likely that you may have one year that costs you more and your maintenance costs will increase with time. Building the buffer up every year is a wise decision.

Another rule of thumb is to save $10 for every square metre. A 600 square metre home would then require $6,000 in savings each year.

These equations should be adjusted based on the quality of your property, the price of the appliances, how new the items are and whether you have warranties or insurances that can cover these repairs.

Don’t forget: Discuss with your property manager the ideal buffer to have set aside for small repairs and maintenance. You should also consider giving your agent the authority to spend a certain portion of funds without authorisation each time, to ensure the home is attended to in a timely manner.

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