Maintenance/CapEx allowances

[Brett Russell]

I have been looking at a number of potential rental properties (single family and small multi family) and trying to do quick analysis with the 50% rule. Many of the properties are lower priced with, therefore, lower rents, but often still meeting the 2% rule.

I understand that landlord covered utilities and tenant quality will play a big role in all expenses, but all other things being equal, is it really safe to assume a simple percentage of gross rents for maintenance and capex?

It seems to me that the cost to repair a leaky faucet or replace a water heater or 1000 sq ft of flooring is going to be pretty much the same whether it's on an $70K house that rents for $1200 or a $30K house that rents for $650. Thus, as a percentage, those expenses would vary significantly for those 2 example properties. Is that incorrect? If not, should I be using a 60% rule for extra safety when expected rent gets below a certain level?

What are other people doing? Budgeting a fixed amount or a set percentage of gross rent towards maintenance and capex? Do you make any adjustment if it's a lower priced property (again, assuming tenants are similar quality)?

[James Syed]

@Brett Russell I am glad you followed up.

You are correct about maintenance and capex, they are to an extent "fixed cost". I say to extent because if the property is 5 years old vs 50 years old, your maintenance number would definitely fluctuate, and your capex would change not as much.

For a single family house, I use a minimum of $1000 for capex and for a fourplex or more units, I use a minimum of $350 per unit capex.

In terms of maintenance, I use a minimum of $1000 for a single family and $600 per unit for a multifamily property.

Like @Bill Jacobsen mentioned it's a too big of range to cover.

I also think it's a great question.

Hope it helps.