Budgeting for expenses and maintenance

29-Jun-2017

It’s that time of year when you should stop, take stock and review the performance of your investment portfolio. 

Or perhaps you’ve received some advice to consider investing in property. Either way, it’s important to know that your investment goes beyond the initial cost of purchase and the best way to do that is to plan ahead for ongoing expenses.

Planning for ongoing expenses, such as maintenance and repairs, will ensure you don’t find yourself under financial pressure throughout your tenant’s occupancy. A lot of emphasis is placed on finding great tenants, but once those tenants are secured, they need to be looked after. A happy tenant whose repairs and maintenance requests are dealt with promptly and professionally will pay off tenfold. Achieving a relationship based on goodwill will always provide the best outcome for a landlord and should be highly valued and prioritised by both landlords and property managers.

How much do you need to budget for?

Our research indicates that you should allow in the vicinity of 20% of your annual yield to cover your regular statutory costs (excluding land tax) and / or strata levies as well as any minor incidental repairs and maintenance expenses that could arise throughout a year.

Of course this will vary depending on the age and condition of the property. Remember, tenants are not expected to tolerate the minor annoyances that a homeowner might “just put up with”.

If you have recently purchased an older investment property that has never been rented before, you might find that you will receive an initial surge of repair and maintenance requests. But don’t worry, this will eventually settle down. As hard as you might try to prepare a property for your tenants, it’s important to accept that some things can only be experienced when living in a property.

While 20+ % of your gross annual yield may sound like a lot, as far as a business goes (and that’s precisely what your investment property should be treated as), it’s actually not bad at all! The key to success is not to allow yourself to be caught short. Schedule a meeting with your property manager to see how they can help you  budget for your known expenses and help to ensure a positive experience for you, your property manager and your tenant.