Property investment success takes time. When you choose to pursue real estate as a means of generating wealth, you know you have to take the long view. And this mindset becomes especially important as you establish a philosophy toward managing unexpected expenses.
As discussed in our previous blog, building a successful real estate portfolio requires you to pay attention to how you manage your fixed costs as well as what to do about unexpected expenses so you can achieve a positive cash flow. Below we’ll help you unpack some ways to deal with the second area – managing the inevitable unexpected expenses that come your way.
Developing a Maintenance Philosophy for Managing Unexpected Expenses
Newer real estate investors are always excited by depreciation – they feel it is tax-free money being given to them for an asset appreciating in value. But more seasoned investors know that every component of a property will break at some point – and it will need to get fixed.
To prepare for those expenses, it’s helpful to have a general maintenance philosophy so you can optimize processes. Then you want to put that philosophy into action.
The first step in preparing for unexpected expenses is to list all the components of a property. Take an inventory and account for everything from the roof to the plumbing, electrical, and all the way down to the drywall.
Next, figure out the expected lifespan for each individual component and get a quote for an exact replacement.
For example, let’s say the component in question is your HVAC unit. You get a quote that comes in at $8,000. If the expected lifespan is a decade and inflation is 3%, your replacement cost in 10 years equates to $10,751 – or $1,075 per year.
Then, look into what preventative maintenance you can do to extend the item’s lifespan. Perhaps biannual tune-ups could add 5 years to the unit’s lifespan. The replacement value would then be $12,464, or $830 a year. As long as those tune-ups cost less than $245 a year, you would be coming out ahead.
Once you do this for every component in your property, it is realistic to expect you to save 10-15% on your annual unexpected expenses (and if you don’t want to handle this, consider hiring a property management company to do it for you).
That’s where we come in. To learn more about all the ways we can help you be successful with your Franklin County property investment, reach out to us today at 614-725-3059.