When budgeting for the costs of holding a rental property, most investors factor in the regular, repeatable expenses such as council rates, water service charges, building and landlord insurance, property management fees and strata fees (where applicable).
From time to time there are additional expenses every investor is likely to incur - the trick is that the timing and extent of these expenses tends to be unpredictable. Due to their unpredictability, they can be more difficult to budget for and are sometimes neglected completely.
Following is not an exhaustive list by any means, however should help as a reminder to new and seasoned investors alike of the importance to allow for a savings buffer to ensure any untimely surprise expenses are little more than an inconvenience.
1. Servicing / repair / replacement of appliances
An unexpected yet inevitable expense relates to the servicing, repair or replacement cost of appliances. More likely in older homes, though just as relevant in more modern homes, items such as oven heating elements can fail, a gas stove may cease to light, a dishwasher may no longer function, an air conditioning unit may stop working.
If working as expected at the commencement of the tenancy, these appliance repairs must be undertaken within a reasonable timeframe for the tenant - and depending on the cause may involve a costly replacement rather than a service call. Having a buffer tucked aside to cover these repair or replacement costs is prudent.
2. Freshening up after fair wear and tear
Most investors will consider having some money in reserve for repairs such as a dripping showerhead, leaking pipe, or some minor touch-ups to walls and paintwork. In reality, even a well-tenanted property can begin to look tired quickly after a number of years. Every property will begin to show signs of fair wear and tear over time which should be addressed to ensure the property remains appealing on the rental market and attracting a strong rental return. Typical considerations every few years may include:
The amount to save for these "once in a while" costs is personal consideration and closely tied to what the specific property and your rental return expectations demand.
3. No income during vacancy
A fundamental of owning an investment property is that at some stage, your property will be vacant and non-income-producing. This may only be a short period between the vacation of a previous tenant and the lease commencement of a new tenant, although at some times of year (such as in the lead-up to Christmas) or in some locations a vacancy period could last longer. It is important to have some money set aside for a vacancy period, and the associated costs of re-advertising and re-leasing the property.
4. Hot water system replacement
Hot water systems unfortunately do not last forever. 8-12 years is considered a typical lifespan for a hot water system, while some may need replacing after as little as 5 years. The cost for replacement varies significantly with the build quality, size and type of system (electric, solar, gas, combination). A small electric "storage" type system may cost as little as $500, instantaneous gas may be upwards of $1000, while some solar systems may cost upwards of $5000 to replace.
Most importantly, this is not a cost you can dwell on. A failure or breakdown of the hot water service is considered an urgent repair by NSW Fair Trading. This means that it must be addressed for the tenant without delay and, if not, provisions are allowed for the tenant to arrange a tradesperson themselves and seek reimbursement for the cost of work (see NSW Fair Trading for more details around this).
5. Pest treatment
One of the most highly visited articles on our site is "Who Is Responsible For Pest Control in a NSW Rental Property?". Generally, the landlord is responsible for the treatment of any pests present at the start of a tenancy, and the best way to minimise the likelihood of any pests is to undertake a seasonal pest treatment.
Remember, "a little a lot". Saving a little bit of money as a buffer can add up to a lot over time, making it much easier to manage any unexpected expenses as they occur.
Carnelian Property Management Newcastle NSW
We are a family-owned and run Newcastle real estate agent offering expert property management across Newcastle and Lake Macquarie.