Maintenance and Repair: How to maintain your 'buy-to-let' property
This section introduces the economics of rental property maintenance, describing typical maintenance and repairs jobs you might have to perform on your property, with an indication of costs, value and risks. It shows the benefits of good maintenance along with some of the pitfalls.
Should you contract maintenance jobs out, or should you do them yourself? - should you do them at all? - we help you evaluate which jobs are worth doing, and by whom, with a couple of examples.
Failing to maintain your property can cost you thousands, we show how simple preventative maintenance jobs can help save you money.
Property investors are always looking to add value to their portfolios. One has a choice between investing money on maintenance (either routine or one-off), or as capital for further property purchases. If properties are not properly maintained, their value will erode – this might be marked if for instance a small job of replacing some roofing slates is not performed which leads to a large flood of the house. Other items, such as interior decorating, can often be put off without long-term damage – that said, you might find it more difficult to rent your property, and the rental value might be lower.
The appropriate prioritisation of maintenance jobs and budgets is very important to maximise the value in your overall portfolio. Maintenance takes time (both management and actual labour), can be expensive and it is sometimes hard to see the immediate economic benefits.
During periods when property prices are rapidly rising, an investor may wish to reduce maintenance to a bare minimum to keep the properties presentable and make sure long term value is not destroyed, and put capital into expanding the portfolio. If prices flatten, then the investor may wish to concentrate on high levels of maintenance and upgrade, and maximising the rental income.
Most or all of the external maintenance of leasehold flats will be performed on your behalf by a property management company and you will be charged pro-rata for these works – payment is normally made within a quarterly, bi-annual or annual Service Charge. On occasions, a one-off payment may be charged for emergency maintenance work – such as a structural or roofing problem that is not covered by the building insurance. These charges would normally be communicated up front to warn you of the cost – you would have some amount of time to query or challenge the cost before the works would go ahead.
Service charges, which include building insurance for a say 150,000 pound flat in South East England normally range from 500 to 1500 pounds per year. In addition to this, there might be a 5-10% chance of a one-off bill of say 500-2500 pounds for emergency repair work.
Service charges do not include the interior maintenance you might have to do, like re-decoration, cleaning or replacing carpets, unblocking pipes, replacing locks, mending showers, replacing boilers. This annual amount is likely to be about the same as the service charges.
In all, the maintenance and repair bills (including service charges) for a typical 150,000 flat would be in the range of 1000-3000 pounds a year. If the property is freehold, and you do most of the work yourself, you might be able to halve these costs. That said, if a boiler need replacing – something which happens every say 7 years, then the bill for a professional to do this job will be between some 900 and 1600 pounds.
As you can see, if you have a medium sized portfolio of 10 properties (all say 150,000 pound flats), and a bad year, you might be paying some 5-10,000 pounds above your base estimate. Your total base estimate including service charges if you do some work yourself (e.g. decorating) and contract other work to be done (boiler, plumbing) could be about 20,000 pounds, or 2000 pounds a property.
Maintenance costs of Freehold Property
If you have a freehold house, you will be responsible for all the repair and maintenance yourself. If some of this repair work is caused by natural disasters such as flooding or storms, you might be able to claim the cost of repair back from your insurance company through your building insurance. Make sure you take photographs of the works and damage and can count on an objective builder to give an expert view on what the damage was caused by – so help with the insurance claim. Also contact the insurance company as soon as you look as if you need to make the claim, preferably before the work is done.
One of the most cost effective maintenance jobs is re-decoration of a property. As an example, if you do this yourself, it might cost 3 days hard work and about 200 pounds in paint and materials. The work might raise the value of your flat from 150,000 to 152,000 pounds and increase your rental value from 625 pounds to 650 pounds per month.
If you pay yourself 30 pounds an hour (net) for 24 hours work, this is 720 pounds. So you can see it has a value/investment ratio of 2.77 - e.g. 2000/(24*30). This rises to 3.19 if one year’s extra rental income is assumed - e.g. 2000+(12*25)/ (24*30). The job however does become inefficient if you can earn 100 pounds an hour somewhere else and/or you can get a decorator in to do the job who charges say 1500 pounds. That said, you might find you have to do the work to get a tenant, reduce void periods to a minimum or sell the property. So overall, as long as you can keep your costs down, the job looks attractive. The purpose of showing this analysis is to make you think about a job before starting it.
Contract out or DIY? Evaluation of Kitchen and Bathroom Replacement - Example:
Much value is destroyed by doing jobs that you might perceive to be important, but are not actually needed. An example is replacing a 4 year old kitchen in a 100,000 flat that is in a reasonable state, with an upper end of the range kitchen costing 7000 pounds. It will probably add 3000 pounds to the value of the property, add 10 pounds a month to rental income, be a lot of hassle and risk and end up making you a loss.
Each job needs evaluating on its own merits. What tenants and purchasers of property normally want is a clean, tidy and well decorated property with neutral colours, nothing broken with an acceptable kitchen and bathroom. Only replace a kitchen and bathroom if it clearly looks old / tired or out-dated.
If you do replace it, this can be done effectively at quite low cost if you choose the right products. An example is replacing an old plastic avocado coloured bathroom suite with new white pot units with full white tiling, lighting and mirrors – this might cost only 1500-2500 if you get the job done with a low cost supplier using their fitting service. And it might add 4000 pounds to the value of the property because the old bathrooms dragged the value down so much.
Some of the most effective maintenance jobs are the simplest and cheapest – those that prevent further maintenance, so called ‘preventative maintenance jobs”. Some examples:
The table shows the damage one can potentially do if no preventative maintenance is performed. It also shows the type of risks you are taking on when owning property.
If you hear your tenant complain about a leak, take it very seriously and act immediately. If you don’t, you might find your roof collapses and the flat below charges you for damage to their property as well. This also goes for burst piping during the winter – if you are in any way negligent and don’t properly insulate, or your property is empty for an extended period, you won't be covered for insurance purposes – damage caused can run into many thousands from a full-scale flood caused by burst pipes.
Finally, if you do not do maintenance properly – you send a message to your tenants that you don’t care too much about the property condition. This is likely to be reciprocated by the tenant – and you will find they care less about the issues as things get worse. The tenant may also use it as an excuse for not paying their rent on time, or at all. If you act quickly with concern on maintenance issues, the tenants are likely to tell you everything and help you in return by looking after the property - this can add a lot of value.
Cost of Typical repair and maintenance jobs on rental property
Typical repair and maintenance costs for 150,000 pound value flat in SE England:
The lower end of the range corresponds to doing the job yourself and getting a good deal from a local low cost supplier. The upper end of the range corresponds to having your letting agent contract the work, having good quality (high cost) replacements, repair and maintenance.
The assumption is that all the above jobs, except boiler replacement and de-scaling and replacing the roof, could be done by a landlord who is experienced at DIY. What you have to do is weigh up whether your time is better spent doing these jobs, or working for earned income, or focussing your investment brain into finding good deals (which may save you say 40,000 pounds a year on a medium sized portfolio).