Every landlord has to make one of two choices: spend money for regular maintenance in order to prevent large, costly repairs down the road, or prioritize savings and make repairs only when necessary. When a landlord views maintenance as an expense as opposed to an investment in their property over time, they could be making an economically bad choice.
Read this article as we will outline why a proactive preventive maintenance plan is a financial investment in your property, maintaining its value, and also maintaining your income.
Common Landlord Dilemma: Upfront Maintenance Costs vs. Long-Term Savings
The central issue, if you are choosing whether or not to pay upfront for maintenance versus save money in the future, is a balance between immediate cash flow and the potential protection of an investment (your property) in the long term.
To determine which method works best for your property and your tenants, you will have to weigh the advantages and disadvantages of each option.
Upfront Maintenance Costs
Choosing a preventive plan involves proactively budgeting for regular services, such as performing a seasonal HVAC maintenance service at approximately $200, gutter cleaning at about $150, and more.
The biggest advantage of the preventive plan is the ability to have complete control over the total amount spent to maintain your property systems and your property’s overall value.
Besides these benefits, the biggest issue with landlords is:
- Immediate Cash Investment: You will be required to allocate money for maintenance before a clear problem arises.
- Overhead in Management Time/Resource: Scheduling and overseeing these tasks require either time or resources from management.
- Coordinating with Tenants: Arranging for access by inspectors and/or servicers, if necessary.
Long-Term Savings
The Reactive Approach will appear to be cost-effective (short-term) by eliminating scheduled costs. The only apparent advantage of the Reactive Pathway is to preserve cash today.
In contrast, there are numerous severe and sometimes hidden threats to long-term savings associated with the Reactive Approach, as follows:
- Cost Multiplier: What could have been a $500 repair today may need to be replaced with a $5,000 emergency tomorrow.
- Premium for Emergency Service: There are 20-50% premium charges for services when done at night or on an emergency basis.
- Damage to Other Property: A small leak can create large amounts of secondary damage to flooring, walls, and personal property.
- Turnover of Tenants: Tenant frustration caused by equipment failure can result in turnover of a quality tenant, creating vacant units and/or re-leasing costs.
The Final Analysis
When compared to each other, “up-front costs” are calculated investments in both your asset’s physical well-being and its income stability. On the other hand, “savings” create a false sense of security, leading to a highly risky liability for delayed repairs whose costs and severity will only increase as they compound.
The data shows that the total cost of small, scheduled maintenance investments is, at all times, substantially less than the cost of avoiding just one major failure. Therefore, Up-front cost is a better strategic financial option.
Best Practices for Implementing a Preventive Maintenance Program
A successful program requires more than intention, but it needs a system. These three pillars turn the concept of preventive care into a reliable, operational reality for your rental business, ensuring consistency and maximizing your return on investment.
Create a Scheduled Maintenance Checklist
Create an annual seasonal checklist of all workflow-related tasks for the property to provide direction for your annual activities. In Spring, it would be best to focus on HVAC system service and an exterior inspection. During the Fall, prepare the property for Winter by having the gutters cleaned and the pipes insulated.
The seasonal checklist will convert the “abstract” objectives into specific tasks, so you don’t miss anything. Also, make sure to record all maintenance requests and fulfillments. Having a detailed maintenance record helps provide evidence in mitigating liability when dealing with expensive rental home repairs.
Partner with Reliable Contractors
Create a relationship with 2 to 3 good, reliable (licensed) vendors in Plumbing, Electrical & Heating/Air Conditioning. The vendors you are working with will be able to give you the best prices on the jobs you have scheduled, and when there is an emergency, they will get to your property quickly.
Your vendors will act as your property’s “medical staff,” making sure all work done at your property is of high quality and keeping your asset in good condition for years to come.
Educate Tenants About Maintenance Responsibilities
Landlords need to proactively mitigate disputes on landlord-tenant repair responsibility in the lease agreement, ensuring minor issues are addressed before they escalate into major expenditures.
Identify in the lease agreement which party is to replace the HVAC filters, report any leaks as soon as they become apparent, and maintain their own dryers’ exhaust vents.
Bonus: How to Budget for Preventive Maintenance (The 1% Rule)
Many people’s greatest barrier to taking care of their home is being able to plan financially. The most common method of determining how much to save for home maintenance and repair is through the use of an annual amount equal to one percent of the home’s current market value.
For example, if your home has a market value of $400,000, your annual home maintenance fund would need to be approximately $4,000 or $333 monthly, as part of the budgeting process. It is important to note that this money should be saved separately from your mortgage and tax obligations.
Once you have broken down your total annual budget into funds for specific items on your seasonal home maintenance list, for example:
- $600 for two HVAC services
- $300 for gutter cleaning
- plumbing inspection ($200)
You can begin to transform your home maintenance expenses from an unplanned financial event into a planned and controllable monthly operational cost.
Conclusion
The strategic landlord sees maintenance not as an expense, but as a capital investment. An in-depth cost-benefit analysis confirms that a systematic preventive program is the most powerful asset protection tool and a means to assure profitability.
The implementation of a structured plan and partnership with a reliable management team will convert unpredictable costs into controlled growth. This gives you the long-term wealth expected from the expensive business of real estate investing.