Buying properties is not a hobby, it’s a financial investment. The main reason that you’ve purchased a buy-to-let property is to grow your finances. After working hard to grow your business and become a success, you need to work just as hard at growing your wealth. In fact, you need to work smarter.
Buy-to-let properties can give you a great return on investment if you are knowledgeable, tactful, and patient. However, the journey of buying a property to rent it out is far from smooth sailing. Time consuming and expensive maintenance and repairs are very common, inevitable problems.
And since we are looking to minimize costs in order to maximize your personal wealth, you need to know how to avoid huge financial blows when providing maintenance to your rental properties. After all, you’ve invested money in order to grow it, not lose it.
Know Your Terms
Before you assess your expenses for your rental property’s maintenance and repair, you have to know the basics and all the commitment it entails. Doing this can help you manage your rental properties smarter and you won’t be left surprised when you see the changes in your income and budget.
A ‘repair’ is fixing an asset back to its original condition. This can be done by using replacement parts to make the original asset fully functional again. Repairs can include:
- Fixing plumbing and electrical wires
- Repair and replacements of appliances
- Replacing damaged windows or doors
Remember that installing replacements inside a property to improve its appearance and aesthetics is still considered a repair. For example, a worn-down window made from jalousie is changed to a new double-hung window.
Property improvement is the process of adding parts to a property and raising its materialistic value or significantly prolonging its life. Improvements can include:
- Structural additions
- Installing a water filtration system
- Installing a swimming pool
- Installing insulation
- Modernizing a kitchen
Now that you know some of the basic terms and differences between repairs and improvements, here are some of the things you can do before you buy a property investment to see whether the maintenance and repairs will be costly or manageable:
Be Careful with Fixer Uppers
One of the most common things investment buyers tend to do is to buy a cheap property which requires a lot of work. Moreover, they tend to underestimate the size of the job—to restore a house that is worthy enough to rent. Following the same notion will make you pay a lot of money to restore the property, which can take you a lot of years to get back your ROI.
If possible, try to get an inspection done by a professional or contractor. They’ll examine the property comprehensively and advise you if the property is ready to be rented or if there is an impending cost for renovation or repairs. This can save you a lot of money in the long run and avoid unforeseen maintenance issues.
Some of the more expensive repair issues include foundation problems, structural issues, and extensive mold. Such concerns can often be difficult to estimate as well. The best way around this is to completely ditch any property you see with these problems and move on to the next.
Buying a property with such repair issues is not worth gambling your money. Be smart about choosing your prospective real estate assets and always go for what could bring you more money, not lose it.
The Older the Home, the More You’ll Spend
Although older homes are commonly perceived to be stronger structures with character, there is a far greater chance of the property in need of restoration due to years of wear and tear.
One issue you have to worry about is lead-based paint on any property built before 1978. If a contractor is distributing lead-based paint to do the work for your older property, they must be fully certified. A government fine may need to be paid, in thousands of dollars, if lead-based paint is not removed correctly.
If you are going to buy an older home, just be prepared to carry out thorough checks, and find out what rules and restrictions come with the small print for an older property. You’ll save yourself a lot of legal work and costs in the long run if you do your research first.
Know Your Country’s Money Saving Policies
You may have taken out an insurance policy to cover certain restoration costs. However, it will only cover some repair expenses for your property and you will need to pay yourself the additional costs which the agreed pay-out did not cover.
To settle additional costs for repair in the UK, for example, keeping your tenant’s deposit in a Tenancy Deposit Scheme is a good idea to cover the damages done by your renters to the property.
You must remember that you can’t claim costs for the furniture and appliances in a property. A reason for this is that these items are not attached to the property. However, a claim against your rental income is possible if you’re not petitioning for a wear and tear allowance.
In case you’re not claiming the wear and tear allowance, you can deduct the cost of low value, short-life items that would need to be regularly replaced. Such items could be:
- Bed linen
You must find out about the various policies that you are entitled to and how you can claim against the above items. A lot of people tend to skim over the finer details in an agreement and by doing so, they end up incurring unnecessary charges that could have easily been avoided. All these figures and sums will end up as money well invested if you do your homework.
Last Minute Tips
Overestimating the expenses for repairs and maintenance is the smartest thing you can do when you’re buying a property. This allows you to project and allot a good budgeting plan. Furthermore, you won’t be financially struck by the almost-never-ending issues your property brings. Taking in mind all the points above will help keep your finances intact and the need for loans and handouts can be avoided.
Don’t take shots in the dark. Obtain estimates for each repair and then budget accordingly. Take a few estimates and compare the reasons as to why one contractor quotes you a certain figure compared to the other. Such tact and consideration will save you money on all future repairs and maintenance.