Owning a rental property in a Homeowners Association (HOA) community can be both lucrative and challenging for landlords. On the one hand, HOAs often help maintain a high standard of aesthetics and property value by overseeing shared spaces, enforcing rules, and ensuring all properties look their best. Homeowners must be aware of their maintenance expenses, which can add up if they are not adequately budgeted for.
Staying on top of property maintenance can mean the difference between positive and negative cash flow. Other particular maintenance costs may surprise rental property owners. If you want to keep your property in good condition and have a healthy profit margin, you must be aware of these costs upfront. Read along as we discuss the top 3 maintenance expenses in an HOA rental property.
Exterior Maintenance and Repairs
One of the major expenses for HOA rental property owners is maintaining the property’s exterior. As a landlord, you must adhere to the rules and regulations laid down by your homeowner’s associations regarding the maintenance and aesthetics of the properties in the community.
To maintain the community’s aesthetic appeal, HOAs frequently mandate that lawns, gardens, and trees be kept in good condition. Keeping up the yard can turn into a regular expense, whether you choose to do it yourself or hire a landscaping service. Seasonal changes may result in higher expenses because you’ll need to take care of things like snow removal, leaf clearing, and irrigation system maintenance, especially in places that experience extreme weather.
As time goes by, the exterior of your property will experience some wear and tear. Weather-related damage, such as from storms or heavy rain, can result in issues like cracked siding, damaged gutters, or leaky roofs. If your rental is in an HOA community, you may face fines or penalties if the exterior isn’t properly maintained, so it’s important to pay attention and stay on top of these repairs. Work with a HOA property manager in Philadelphia to ensure maintenance concerns are reported right away. With regular inspections and preventative maintenance, you can avoid potential problems before they turn into costly repairs.
HVAC and Plumbing Maintenance
HVAC (Heating, Ventilation, and Air Conditioning) systems and plumbing maintenance are considered maintenance expenses in a rental property that should be prioritized. These are important parts of any property and, if overlooked, can cost you some money. To maintain optimal performance and prevent unplanned malfunctions, HVAC systems need to be serviced regularly. In the long run, lower energy costs and fewer costly emergency repairs are two ways that a well-maintained HVAC system can save you money.
Another area where minor issues can become bigger ones if left unattended is plumbing. Outdated plumbing systems, clogged drains, and leaky faucets can all lead to expensive repairs. Also, since most tenants frequently rely heavily on these utilities, poor maintenance may cause them to become dissatisfied or, in the event of serious issues, it may result in legal concerns.
Shared Amenity Maintenance
Most HOA communities have access to swimming pools, gyms, clubhouses, tennis courts, and all sorts of common amenities. Maintaining common areas in a HOA is important to keep everyone safe. Even though these places need to be serviced, the cost of maintaining them is brought down to the property owners through HOA fees. These vary greatly depending on the community and amenities offered, but it is mostly in the range of $200 to $500 per month. Other than the regular HOA dues, owners of rental properties may also be assessed with special assessments for major maintenance or improvements in common areas.
For instance, your HOA may charge a single-time special assessment fee. If your clubhouse needs renovation or the community pool needs major repairs, this may cost hundreds or even thousands of dollars, depending on the scale of the project. These assessments, although mostly necessary to keep the value of properties and improve the community, can catch residents off guard sometimes, especially if one did not budget for them. Attending the meetings of HOA is a good way to stay knowledgeable about future projects rather than find yourself caught in a compromising position.
How to Create an Effective Budget for Maintenance Fees?
Assess Your Property’s Needs
Before you come up with a budget, it’s important to assess your property’s specific needs. Each property has its unique maintenance requirements. You should consider things like the age of your property, the condition of its major systems, such as roof, HVAC, and plumbing, and whether you have any outdoor areas that need regular maintenance. If your property is older or hasn’t been reworked in a while, you may need to budget more for repairs.
Follow the 1% Rule
In property management circles, it’s a general rule of thumb for a rule called the “1% Rule,” which infers that you should consider spending about 1% of the value of the property every year on maintenance. For example, if your rental property is worth $300,000, you should be budgeting $3,000 a year for its repairs and maintenance.
Although this is an approximate estimate, it will give you an idea of a pattern that you should follow in setting up your budget. You also have to take into account that newer or worse-shaped properties might require less, and older homes need a bigger budget.
Set Up a Contingency Fund
These are unexpected repairs, and no matter how well one plans or prepares for an incident, water damage can occur or appliances fail. This means that having a contingency, in other words, an emergency fund, is key in meeting such incidents without denting your overall budget.
You might want to set aside 10-15% of your annual rental income in preparation for these kinds of contingencies. That would provide you with a soft landing against unpredictable costs without using money out of your regular savings.
Renting out a home in an HOA requires proactive maintenance, especially on tasks such as HVAC, plumbing, and shared amenities to keep the living situation of your tenants running efficiently. Being a proactive landlord and diligently going through regular inspections can help avoid expensive repairs.
Being a property owner comes with the responsibility of financing the maintenance of their rental. It is suggested to be prepared with an emergency fund for unexpected repairs. After all, good maintenance improves tenant satisfaction, protects the value of the property, and maximizes your investment return.