What is R&M in real estate?

R&M Definition

In real estate, "R&M" refers to "Repairs and Maintenance," which includes both the repair of broken or damaged aspects of a property (repairs) and routine activities to keep the property in good condition (maintenance). Well-coordinated R&M work maintains property value, ensures safety and code compliance, and keeps properties appealing to tenants or buyers. Effective R&M prevents minor issues from becoming major problems and contributes to the long-term sustainability of the property.

Repairs: This involves fixing any parts of the property that are broken, damaged, or not functioning properly. Examples include repairing leaky roofs, fixing broken windows, and addressing plumbing issues.

Maintenance: This is the routine work necessary to keep the property in good working order and prevent future repairs. It includes activities like painting, cleaning gutters, servicing HVAC systems, and general upkeep.

What's the Difference Between R&M and Capital Improvements?

The difference between Repairs & Maintenance (R&M) and Capital Improvements in real estate lies primarily in the nature and impact of the work done on the property:

Repairs & Maintenance (R&M)

R&M involves fixing problems or maintaining the property to keep it in its original condition. This includes routine activities like painting, fixing leaks, repairing broken fixtures, and regular servicing of systems like HVAC.

The primary goal is to maintain the property's current value and functionality, not to enhance it significantly.

Expenses for R&M are typically considered operating expenses and are usually expensed in the financial period they are incurred, reflecting the short-term benefit. R&M costs are subtracted from income to get NOI.

Capital Improvements

Capital improvements are investments in the property that substantially enhance its value, extend its life, or adapt it to new uses. Examples include adding a new room, upgrading the electrical system, or installing energy-efficient windows.

The aim is to increase the property's market value, improve its performance, or extend its lifespan significantly.

These costs are capitalized, not expensed immediately. This means they are added to the property's asset value on the balance sheet and depreciated over the useful life of the improvement.

While R&M preserves the property's existing condition and value, capital improvements enhance and extend the property's value, functionality, and useful life. The distinction has important implications for accounting and tax treatment in real estate.