Common Rules of Thumb
- 1% Rule: Save 1% of the property’s market value each year (e.g., $2,000/year for a $200k home).
- 50% Rule: Budget 50% of your gross rental income for all operating expenses (including taxes, insurance, management, and maintenance).
- Percentage of Rent: Allocate 5-10% of monthly rent for maintenance, or up to 10% for repairs.
- $1 per Square Foot: Budget roughly $1 per square foot annually.
Factors That Increase Your Budget
- Age of Property: Older homes need more frequent, costly repairs.
- Location: High labor/material costs in an area increase expenses.
- Tenant Turnover: Frequent turnover leads to more wear and tear.
- Capital Expenditures (CapEx): Large items (roof, HVAC, appliances) need separate savings, sometimes requiring more than 1-2%.
Best Practice
Start with a rule of thumb, but then create a separate fund for major replacements (CapEx) and adjust your budget based on your specific property’s condition and location to create a realistic reserve fund.
