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There are a lot of moving parts involved in commercial property management, which makes organization and planning critical to success. Although building aesthetics are important to attracting customers, property maintenance is critical to keeping satisfied, long-term tenants. That’s why successful landlords make budgeting for operating expenses like maintenance a top priority during annual planning.

Commercial property maintenance is important to ensuring the health and longevity of large asset investments like commercial properties, so we’re outlining everything you need to know about property management budget planning in today’s post.

Table of Contents:

Why Is Commercial Building Maintenance Budgeting Important?

Commercial or rental property maintenance is an essential part of property management for several reasons, like ensuring the longevity of the property investment by keeping up with essential maintenance and necessary repairs and keeping customers and tenants satisfied with the look and functionality of the property. However, building maintenance takes money, which means it requires a significant line item in your property management budget planning.

Failing to budget for maintenance expenses, both planned and unplanned, is simply poor business management and can lead to significant debt or even property loss – not to mention unhappy tenants. Therefore, creating and executing a property maintenance budget is a critical part of property operations and should be included in annual planning. So, let’s consider what types of maintenance expenses you can expect throughout the year and how to classify them in a budget.  

Types of Commercial Property Maintenance Expenses

In general, commercial property maintenance expenses can be broken down into four categories: regular monthly maintenance, emergency maintenance, preventative maintenance, and seasonal maintenance.

Regular Monthly Maintenance

Regular monthly maintenance expenses typically include any monthly costs associated with maintaining the exterior and curb appeal of the property, as well as all common interior areas of the building. Landscaping, routine exterior and interior cleaning, and garbage/recycling collection are a few common examples of monthly maintenance costs that fall within this category. 

Emergency Maintenance

The unexpected happens, and a contingency budget is critical to keeping surprise maintenance costs under control. Therefore, an emergency maintenance budget is necessary to cover the unexpected, such as HVAC system malfunctions, elevator breakdowns, burst pipes, and other operational emergencies. 

Preventative Maintenance

“An ounce of prevention is worth a pound of cure” is a well-known English proverb used to describe how much easier it is to prevent a problem than fix it – and it certainly applies to commercial property maintenance. Planning and budgeting for routine maintenance on the property’s essential systems can help mitigate expensive emergency repairs, so plan to maintain contracts with HVAC, appliance, and pest control companies for regular inspections and upkeep. 

Seasonal Maintenance

Seasonal maintenance expenses vary depending on the type and location of your commercial property. For example, snow removal in the winter or gutter cleaning in the fall will fall under seasonal maintenance expenses.

Estimating Commercial Property Maintenance Expenses

Properly budgeting for annual upkeep and other non-maintenance-related expenses can be a little tricky. Following are some formulas for estimating costs that can help ease the burden of this task and help ensure you have a proper amount of money budgeted. 

1% Maintenance Rule

The 1% maintenance rule is pretty straightforward. Under this rule, property owners or managers should plan for annual maintenance costs of around one percent of the property’s purchase price. Therefore, if you paid $300,000 for the property, then budget $3,000 for basic annual maintenance.

Square Footage Formula

Another option is to apply the square footage rule. With this rule, an owner or manager should budget a minimum of one dollar per square foot of space annually. For example, a 3,000-square-foot commercial space will require an estimated $3,000 in basic annual maintenance. 

5X Rule

This rule is a little different than the previous two. This property maintenance expense budgeting method involves calculating annual maintenance costs that average 1.5 times the monthly rental rate of the property. So, if your property rents for $1,200, then you should anticipate spending approximately $1,800 a year on repairs.

Tips for Developing Facility Maintenance Budget

Following are some helpful tips for developing a comprehensive property maintenance budget and ensuring upkeep costs are covered annually. After all, due diligence is critical for budget planning, especially if the expenses are subject to approval.

Consider Costs from Previous Years

One of the most critical practices in property management is record-keeping, and this especially applies to maintenance expenses. Those that keep records over the years in an organized fashion can easily track past expenses and uncover patterns. This makes planning and budgeting for the future much easier.

However, if you do not have the luxury of expense records, then try to find out what work was done in recent years or reference the details of the building inspection for indications of what may challenge your budget in the future.

Carefully Separate Fixed and Variable Costs

Once you have a property maintenance estimate to work with for the coming year, it’s recommended to carefully separate all factored costs into two categories: fixed and variable. The fixed costs are those that are not likely to change and will form the basis of your budget. Examples of these costs include window cleaning, HVAC maintenance, and landscaping. 

Property maintenance variable costs, on the other hand, are unknown and trickier to account for when budgeting. Records from previous years can help determine likely variable costs, which typically include one-off emergency or maintenance repairs.

Consult Your Team

Property management budget planning is a collaborative effort, and those involved with property maintenance will be instrumental in this portion of the budgeting. It’s important to get feedback from individuals that fall under the property maintenance umbrella, both internally (employees) and externally (vendors).

Make Savings Wherever Possible

It’s possible to plan to save, and it can help keep maintenance costs in check. Some examples include buying in bulk whenever possible, switching to more energy-efficient lighting, and improving insulation. Also, if discounts are offered with annual service contracts or larger maintenance expenses, take advantage of them. For example, if it’s time to repaint the exterior of the building, commercial painting services are often discounted in the winter.

What Else to Include in Property Maintenance Budget?

So far, we’ve covered the basics of building a pretty comprehensive annual property maintenance budget. Now let’s look at a few other considerations to account for in the planning process. 

Building Age & Location

The property’s age and location can affect the maintenance costs, as there are maintenance costs that aren’t necessary every year but should be maintained over the life of the property. For example, is it time to replace the siding, repaint the exterior of the building, or restripe the parking lot? 

Buffer for Unforeseen Expenses

Unforeseen expenses are sneaky costs we don’t always consider with property maintenance, like unforeseen service cost increases. Therefore, it’s wise to plan for some cushion in the budget for expenses not accounted for in planning. This can be added to the top of your overall budget or built into your sub-budgets for each area.

Construction Costs

Construction costs are typically categorized as Capital Expenditures (CapEx) costs, and they can sabotage a budget if not planned for in advance. Examples of CapEx can include upgrades and significant additions to your property. So, if any new or maintenance construction like this is scheduled for the year, list it as an extra CapEx line item, as it’s not a regular maintenance event.

Unscheduled Events

As mentioned earlier, the unexpected can happen anytime. So, it’s essential to have money set aside for these occurrences. Think of it like a rainy day fund – it may not be used, but it’s there if necessary.

Commercial property maintenance budgeting is a comprehensive task; however, time and experience will help refine the work over the years. Hopefully, these maintenance budget planning tips will help you effectively plan for the coming year. After all, budgeting for building maintenance costs will help ensure proper maintenance of your investment, ensuring the health of your building is maintained, and the tenants remain satisfied and intact for years to come. 

Is commercial interior or exterior painting in your 2022 rental or commercial property maintenance budget? We offer great deals on winter painting projects.

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in Chicago or Cincinnati for an estimate today!

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