How much should you expect to pay for annual repairs, maintenance, upkeep, taxes, and insurance on your rental?
This is a tough question but there are ways to estimate how much you should set aside. Here are four methods – any one of them would work as a good estimate.
Square footage – this method simply calculates $1 for each square foot of the property is to be set aside annually. For example, for a 1500 square foot home, you can expect to set $1500 aside annually.
1% of value – this method estimates 1% of the property value should be set aside annually. For example, if your home’s value is $150,000 then you can expect to spend $1500 a year.
50% of monthly income – this method estimates that 50% of your monthly rental income should be set aside annually. For example, if your monthly rent is $1500 then $750 should be aside each month.
1.5x rule – this method says that maintenance will be 1.5 time the monthly rent. For example, if your rent is $1500 per month then you will spend $2250 annually.
You can find lots more details on these various methods by searching the internet. The bottom line is that no matter what method you use, make sure you calculate costs when determining profitability and whether this investment makes sense.