It’s difficult to answer this question but it is important that funds are put aside for regular maintenance and unforeseen expenses.
One of the highest expenses is covering for vacancy periods so even throughout a fixed term tenancy, it’s important to consider future costs and a sensible investment strategy for building a successful property portfolio.
Certain Ongoing Outgoings: It is the property owner that is responsible for strata levies, water service charges, council rates, insurance etc. These all are predictable expenses that are fairly constant from year to year. Additionally, the mortgage expenses form part of the long-term budget and forecasting of the investment plan.
The importance of having a reserve fund….
A reserve fund is basically the contingency plan for unexpected costs that pop up. The rental market is not always predictable (if only we had that crystal ball!!) so fluctuations in weekly rent and vacancy are inevitable. Besides having a few thousand dollars tucked away for unforeseen repairs, it is crucially important for the return on investment to keep investment properties presenting well and well maintained for both reducing the vacancy, keeping good tenants, and ultimately for the exit plan when it comes time to sell and cash in.
Some financial advisors suggest having 10% of the total property value as a reserve fund. Retaining a certain percentage of the monthly rental income is another great way to protect yourself. It is always an important to seek financial advice before renting your home or purchasing an investment property to make the best decisions based on your personal circumstances. Fail to plan, plan to fail as they say.