Repairs and maintenance (R&M) in commercial real estate refers to work done on a property that is designed to maintain the property’s current condition. This includes work done to prevent the further deterioration of building components or systems or to replace a building component at the end of its useful life.

R&M stands in contrast to capital expenditures, which can add significant value to a property. Examples of capital expenditures include installing a new roof, doing significant landscaping, or replacing/upgrading a building's security system. When doing accounting for your commercial real estate project, this makes a big difference. While R&M is classified as an expense, capital improvements are listed as an asset, since they add long-term value to the project.

In some cases, an R&M job which would initially be classified as an operational expenditure can become a capital expenditure if the scope of the repair project increases beyond maintenance. For example, a property owner might plan to replace a small amount of building carpet after a leak. However, after realizing the extent of the damage, they may decide to order new carpet for the entire building. In this case, the planned repair would likely be classified as a capital expenditure instead of an operational one.

Common repairs and maintenance costs associated with commercial real estate include property and liability insurance premiums, utility installation charges and deposits, maintenance equipment, purchase of office equipment and furniture, congregate items, advertising expenses, and management fees. Instituting a rigorous repairs and maintenance program not only greatly reduces work site risk and unplanned expenses due to operational faults, but also increases the longevity of real estate assets.

Sources:

• O&M: Operating and Maintenance Expenses in Commercial Real Estate
• R&M: Repairs and Maintenance in Commercial Real Estate

Investing in repairs and maintenance for commercial real estate can provide several benefits. These include being able to deduct the costs from your income taxes in the year they are incurred, as well as being able to itemize your expenses for easier filing. Additionally, larger changes to the property can qualify as capital improvements, and these can be depreciated over the course of several years.

Source: The Top 10 Tax Benefits of Investing in Commercial Real Estate and Federal Tax Implications for Commercial Real Estate in 2022

Not investing in repairs and maintenance for commercial real estate can lead to a few risks. Firstly, cash flows may take a hit as we enter a recession. Secondly, if you can’t keep your property fully operational during a downturn, expect that to directly translate into higher tenant turnover and lower returns. Finally, not investing in repairs and maintenance can signal to your tenants that you won’t take care of them, even when it isn’t convenient for you as a landlord.

If you don’t have the capital on hand to invest in repairs and maintenance, you can look into a small loan. Commercial Real Estate Loans offers office building loans that can help you finance the repairs and maintenance of your commercial real estate.

The best practices for budgeting for repairs and maintenance in commercial real estate are to be proactive and take care of any necessary repairs and maintenance as soon as possible. This will help to ensure that your property is kept in good condition and that your cash flows are not affected by a recession. Additionally, it is a good idea to itemize your expenses for any repairs and maintenance projects, as this will make it easier to file taxes. If you don't have the capital on hand to do the repairs and maintenance, you can look into a small loan.

Investors can deduct property repairs, maintenance costs, certain property management expenses, and many other operating expenses from their income taxes. This includes costs to travel to and from a rental property, including hotel expenses and 50% of food and beverage costs. Investors may also deduct the cost real estate investment related seminars, conferences, conventions, and other similar education events. However, general property improvements, such as renovations or new furnishings, cannot generally be taken as deductions in the year they are incurred. Instead, these must be depreciated over the regular life of the property.

Source: Federal Tax Implications for Commercial Real Estate in 2022 and The Top 10 Tax Benefits of Investing in Commercial Real Estate