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Updated about 7 years ago,
Why are"Repairs and Maintenance" expenses calc. as a % of income?
In the Bigger Pockets calculator, "Repairs and Maintenance" are represented as a % of gross monthly income. The suggested range is 5-15% of monthly income. My question: Shouldn't "Repairs and Maintenance" be calculated based on a variable that speaks more to the value of the property such as ARV (after repair value)?
When running various rent price (income) scenarios to see the impact on your monthly cash flow, you are "penalized", in a sense, for increasing the rent price. For example, if I want to see the difference in monthly cash flow based on charging $1,300 for rent vs. charging $1,400 for rent, my expenses would automatically go up for the $1,400 rent scenario because of the way rent and maintenance expenses are estimated. I don't believe that your expenses would necessarily increase based on the amount of rent you are charging. By the same token, I don't believe your repairs and maintenance expenses would decrease because you are charging a lower amount of rent per month.
What has everyone's experience been with the expense category of repairs and maintenance? What is the best way to estimate these expenses? It seems that % of ARV would be more a fixed variable and allow more of an apples-apples comparison when estimating cash flow based on various rent prices.