MAINTENANCE: Predicting the unpredictable

Maintenance, the brown jumper-wearing cousin of the property world but a new boiler here and broken hinge there and it mounts up over the years. Get your cost assumptions wrong though and you could be in for dire consequences. Investor Alex Daley thinks he might just have found the person with the stats to solve the dilemma.

What do you use for your maintenance estimates? Five percent. Or perhaps you are more conservative at 10%. Maybe you plan for 10% of gross profits?

You can be forgiven for trying to find a back-of-the-envelope way of projecting those niggling costs. It is what most of us do and certainly had to do at the beginning of our investing journey. There’s not a lot that’s too exciting about maintenance, but what you budget for maintenance can turn a good deal into a stinker. So, if you want to be lying on a beach, sipping a cocktail whilst your Ferrari is being valeted, much like the £3,997 courses promised, then you may wish to give this at least half an eye. To get a real-world and actionable maintenance budgeting plan, I’ve bought in Lee Scott, who’s done all the leg work so we don’t have to. He’s tracked 19 years’ worth of data across his portfolio as it grew to over 20 properties in the North of the UK. All bills, divided by all properties, over every month owned, then adjusted for inflation and, voila, he has his magic number.

Here’s Lee Scott’s mystic maintenance masterclass:

Firstly - why bother going into so much detail? For someone like myself who was toying with the idea of retiring early and living off property, I had to know that the numbers were spot on and that they could support my current standard of living. It can be easy to be lured into a false sense of Tell us about your portfolio, so we can get an idea of how that helps shape your figures... I have a mix of 22 properties, comprising three and four-bedroom semis and terrace properties, and two flats. I also have a huge 22,000 sq ft commercial building but commercial maintenance is a whole different ballgame and has been excluded from my maintenance calculations to keep it relevant to most BTL landlords.

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Lee Scott: Landlord

OK, put us out of our misery, what’s the definitive number for estimating maintenance? So, simply put, to arrive at the figure I consider every penny ever spent on maintenance, divided by the number of properties owned in a particular class. Simple but effective.

Here are my calculations:

3X

2 BEDROOM FLATS £93.43pcm - This equates to approximately 15 percent of the rent

3X

2&3 BEDROOM SEMI-DETACHED £136.22pcm - approximately 16 percent of the rent

17X

3&4 BED TERRACED £105.56pcm - approximately 14 percent of the rent

This includes the cost of bi-annual inspections at £7pcm per property. In all instances, you can see this is much higher than the five to ten percent figures bandied around and can make a real difference to cash flow projections.

What’s your advice to those looking to keep maintenance costs down long-term? My whole business model supports being the best, most profitable, landlord - both long and short-term. Here are my tips:

FUTURE PROOF YOURSELF Acquiring most of my properties through the BRRR method meant I was able to go back to basics and do absolutely everything in one go - rolling a lot of costs into one. For instance; a property needing back-to-brick or even just more than 40% plastering means a re-wire will be half the cost of a future live-in rewire. Combine that with the future refinance and a lot of future maintenance costs are swallowed up by increased value and getting my money back out.

TENANTS I always find that with a fresh, clean home that stands out in the market, you can afford to be selective over the correct tenants. There is nothing more expensive than a cheap tenant who doesn’t report maintenance or look after the property. One key thing to look for in tenants is to follow the guidelines set by guaranteed rental insurance checklist. It’s not rocket science to work out that these companies reduce their own risk by setting strict criteria. Typically, these include: - Two working applicants in separate industries for maximum protection - No pets - Previous landlord and work references - Credit check - Homeowner guarantor

INSPECTIONS Again, so simple but so often forgotten. Property inspections are the key to spotting early maintenance. I have some lovely tenants with beautiful homes but even they miss vital elements that can compound over time. Our last round of inspections was done two weeks ago and found 12 items of maintenance that had not been reported. Catch them before real problems arise.