Budgeting for the Cost of Repairs

When investing in rental property the primary goal is to create reliable passive income, however miscalculating for repairs can be detrimental. Fortunately, each big-ticket item in a home has an average lifespan which can be used to help when budgeting for long-term repairs. Let’s take a look at the average cost and lifespan of items in the typical rental property.

One of the most costly items for a homeowner is the roof. The average roof for a single family home is going to cost around $12,000 (ranging from about $5000 on the low-end to about $20000 on the high-end). There are multiple factors involved in calculating this number, from square footage and choice of materials, to the time of year and labor rates of the general area. Instead of waiting for the inevitable replacement of the roof, it is best to budget for it up-front. The exception to this is if your property resides in an HOA where the monthly dues cover roof repairs.

The average life of a roof depends on the materials used. For the basic asphalt composite roof, you can estimate a 20-40 year lifespan. If you opt to use higher quality materials like fiberglass shingles, clay tiles, or metal sheeting, your roof could last over 40 years by some estimations. Concrete tiles can sometimes even last 50 years plus!

In the event your property’s roof is actively leaking, it not only creates frustration for your tenants but also has the potential to spread to other areas of the home. By waiting until the roof is actively leaking, you risk extra damage to the ceilings, interior walls, and flooring of your home. Replacing the roof before it becomes a major problem will provide relief to your tenants and your wallet.

Some homes do not have central heat and air conditioning, however for most modern homes this is a standard amenity. Additionally, you may attract more tenants to a home that provides central heating and air conditioning versus one without. That being said, the HVAC system can be expensive if you are not prepared for the maintenance and repair costs. A full HVAC system replacement can range between $6,000-$10,000 depending on the size needed for your home. If installing a brand new system in a home that did not have it previously installed, the cost can be thousands more for installing ducting throughout the home.

The typical HVAC system has an average lifespan of 15-20 years. Past that, one may still operate, but never with the power and efficiency of a newer system. By not replacing an HVAC system nearing the end of its life, your tenant’s electricity bills will be much higher than before. This can cause frustrations, and your tenant may consider moving out.

Depending on the manufacturer, the standard water heater is going to cost anywhere between $500-$1000 without installation. Tankless water heaters that provide almost instant hot water throughout the home range from $800-$1700 without installation. Keeping hot water running in your rental is vital, and you’ll want to be prepared when this unit comes to the end of its usable life. A standard water heater should last 8-12 years if installed correctly, and a tankless is estimated to last more than 20 years.

Per appliance vendor Mr. Appliance the average lifespan of most home appliances are as follows:

• Stove
  • Electric: 16 years
  • Gas: 19 years
• Fridge: 14 years
• Dishwasher: 12 years
• Washer: 12 years
• Dryer
  • Electric: 14 years
  • Gas: 13 years

For a rental property you likely won’t be purchasing the top-end luxury appliances. You can typically estimate and budget the following amounts for rental-grade appliances.

• Stove: $500-$600
• Fridge: $600-$800
• Dishwasher: $400-$700
• Washer: $350-$700
• Dryer: $400-$700

Let’s explore a hypothetical scenario where you’re buying a rental property and are working out the budget for long-term repairs.

• Roof is approximately 12 years old, made of asphalt composite.
  $12,000 average cost / 8 years of life left = $1,500 annually ( or $125/mo)
• HVAC System is 4 years old.
  $8,000 average cost / 11 years of life left = about $730 annually (or $61/mo)
• Water Heater is tankless, and 1 year old.
  $1,250 average cost / 19 years of life left = about $65 annually (or $5/mo)
• Stove is electric, and brand new.
  $550 average cost / 16 years of life left = about $34 annually (or $3/mo)
  
• Dishwasher is 12 years old, and is failing.
  $550 average cost up front
  
• Fridge, Washer and Dryer not included.
  Not all rentals provide these items. We’ll leave these out for the sake of simplicity.

Based on the numbers above in our example, you will need to budget an additional $550 up front for the dishwasher, and $194/mo to properly prepare for the eventual replacement of the other items. Fortunately, we’ve used the lower end of the life expectancies – your HVAC, roof, and appliances could possibly last longer than expected. It is better to over-prepare than to be surprised. Budgeting properly can end up saving you thousands of dollars down the road and help you avoid major headaches.

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