Tuesday, September 20, 2011

Bills and more bills!

At a property investor conference recently, a speaker was discussing how much to set aside for maintenance. One of the gurus the speaker studied suggested $500 per annum. The speaker thought this was on the light side by at least $1000. I tend to agree, although more is recommended, particularly if your property is older.

Last year, my partner and I spent $20,000 on R & M on our properties. To be fair, that included a total bathroom renovation including a new hot water cylinder, and insulation ceiling and underfloor in a couple of properties, and practically nothing on others.

What do I normally spend on my properties? It is really variable from year to year. On one, I had a new concrete drive and carpad laid. It was the first time any maintenance was done on the drive in the 11 years I had owned it, and it was pretty rough when I bought it. I inspected the same property last week, and I rang the plumber immediately, another hot water cylinder was needed. That's what I get for buying properties built in 1965 - all the hot water systems have reached the end of their lives now. It is optimistic to think it will be 2057 before I need the next one, they just don't make them how they used to. I also called the locksmith as one of the locks had stopped working, and noted the windowsills need painting just as soon as my tenant moves. That could be a long while away. In the past, I have insulated the property (about $2000 if I remember right), and installed a heatpump ($2500). Painted the interior (did it myself, cost couple of cans of paint and a lot of my evenings and weekends). Had the plumber clear the drains and gutters (did you know pohutukawa roots can climb drainpipes 2 stories high?), and a million other things that have long faded into away, some of which are coming around again, like painting the outside ($10,000 last time).

I want to change the embassasingly shoddy carpet, but my tenant tells me to wait until her kids are grown so she doesn't have to worry about ruining it. The last one is going to start school soon, so it's on the horizon. I will certainly need to replace the roof, the current one doesn't have much life left in it, and I do need to refit the bathroom soon. The current fittings are near 50 years old. If only a new bathroom would last as long! I'll need to update the wiring and put in new power points as it woefully lacks them, and pull down the old chimney to make the property safer.

With all I spend on it, am I making any money? Well, my tenant has been there for 7 years and 3 children with no sign of moving any time soon. They pay the rent every single week without fail. The rent has increased to just about double the value it was when they moved in. The house value has more than doubled since I bought it. I sleep easy at night knowing the tenants are taking care of things. The back section is big enough for me to put another house on, and I have the plans drawn. When the time is right, I'll do it to increase the rent and property value.

Have I been lucky? Nah, just good at recognising when money should be spent. It keeps the tenant happy and my property value high. Has the cash-flow management always been easy for me? No, not at all. That's why I have a revolving credit at the bank, and put some of my own money into the property. I like to have a buffer to ensure that if I have a big expense, or the tenant doesn't pay the rent, the council rates, bank loan, and insurance all get paid. I consider that to be sensible investing. It works for me.

Do you know what expenses you have coming up on your property? Does your property manager tell you about long-term issues that are creaping your way? Or do they spring them on you at the last minute - 'you must reroof now!'?

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