How much to budget for rental property maintenance (and why the 1% rule is wrong for small landlords)

The three rules and what each misses

• The 1% rule: set aside 1% of the property's value per year. Misses that a $150,000 duplex and a $600,000 duplex have the same furnace. Useful only as a floor.
• The 50% rule: all operating expenses — taxes, insurance, maintenance, vacancy, management — run about half of gross rent. A screening heuristic for buying, not a maintenance budget; it tells you nothing about which half is repairs.
• Per unit per month: a flat amount per unit, often quoted in the low hundreds. Closest to useful, but it treats a 2019 condo and a 1920 three-family the same.

The useful distinction is between routine maintenance (predictable, small, monthly) and capital replacements (large, rare, on a known schedule). Budget them separately.

A three-line budget

1. Routine: what last year actually cost, per unit, divided by twelve — plumbing calls, handyman, appliance repairs, pest, filters. If you do not have last year, start at the per-unit rule of thumb and correct after twelve months.
2. Capital reserve: for each big-ticket item — roof, furnace/boiler, water heater, AC, kitchen appliances, flooring, exterior paint — its replacement cost divided by its remaining years. Add them up. This is the line that surprises people, and the one the 1% rule was trying to approximate.
3. Emergency float: one or two large repair bills kept liquid, separate from the reserve, so a burst pipe does not land on a credit card.

Lifespans are typical ranges; your climate and the installer move them. Fill in what you know, guess the rest conservatively, and correct the sheet every time a vendor tells you the real age of something.

What actually moves the number

• Building age: pre-1960 plumbing and wiring roughly double routine calls versus post-2000.
• Deferred maintenance you inherited: the first two years after a purchase run high while you catch up.
• Response speed: a leak fixed in a day is a plumber; a leak fixed in a month is a plumber, a drywall contractor, and a mold remediation.
• Tenant reporting: tenants who report early save money; tenants who fear the landlord report late. The fastest lever on your maintenance budget is being easy to text.
• Vendor relationships: a handyman who knows the building and answers texts costs less per job than a marketplace stranger every time.

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