Home Repairs…How Much Do I Need To Budget?
Home Repairs make up the second biggest expense that homeowners face. One of the biggest mistakes that new homeowners make is that they assume that the cost of their mortgage represents their entire household home-related budget.
After all, when they were renters, they didn’t have any home repair expenses other than the cost of rent. They make a direct one-to-one comparison between rent and mortgage and assume that the story ends there.
Unfortunately, for them, it doesn’t.
The Never-Ending Home Repairs
When you own a home, you’re responsible for all home repairs and maintenance on the house. If you don’t have any experience with this, this might sound like an incidental side note. But, as many homeowners can attest, this ends up taking a huge chunk out of your savings. That’s why people joke that a home is just a big pit that you pour what seems all of your money into.
What types of home repairs and maintenance are we talking about?
Replacing the roof every 20 to 25 years
Trimming the trees and the tree limbs
Replacing the gutters
Cleaning the gutters
Installing an irrigation system in the lawn
Fertilizing the lawn
Tearing out fences
Replacing vinyl windows every 35 years
Replacing the siding
Painting or rebuilding the deck
Replacing all of the outdated appliances
Replacing the carpet every 8 to 10 years
Repairing and upkeep on A/C’s and Heaters
Repairing and upkeep on Appliances
You get the idea. The list could go on and on for a very long time.
Given that you don’t know what home repairs your home is going to need and you don’t know when your home will need those repairs… how can you budget for this amount?
There are several things to consider when planning a home repairs budget. Here are two rules of thumb to consider and a list of home related factors that will help you in this calculation and guide you towards determining how much to save and set aside.
First is the 1 percent rule:
One popular rule of thumb says that one percent of the purchase price of your home should be set aside each year for ongoing maintenance and home repairs. For example, if you purchased your home for $300,000, you should budget $3,000 a year for maintenance and home repairs. This doesn’t mean you’ll actually spend $3,000 a year, it means that on average, over a span of years (10 or more), you’ll spend an average of $3,000 a year. Some years you’ll spend more like a roof for instance could be $4,000 to $10,000 or an exterior painting could be $3,500 to $6,000. Other years you’ll spend far less.
Of course this rule of thumb isn’t always totally valid. Your market timing doesn’t allow for impact in your home maintenance budget. If you picked up you home when market rates were low, then your one percent would be lower and vice versa if you bought at above market rates your one percent would be higher. The underlying price of your home and its repair costs, in other words, are “independent variables.” They correlate only insofar as they’re both impacted by the cost of labor and materials in your particular geographic area.
Second is the square foot rule:
This rule of thumb says you should budget $1 for every square foot of home size per year for home repair and maintenance cost. If you own a 2,500 hundred square foot home, for example, then you should budget $2,500 per year for home repairs and maintenance (again, over a long period of time). This rule of thumb makes more sense than the 1 percent of purchase price rule. The more square feet you are managing, the more you’ll need to spend.
The one draw back to these rules are that they don’t allow for labor and material cost in your area. In parts of the nation that have higher labor and material cost, one would need to factor in these variables. In areas with lower labor and material cost, one could come out even or possibly a little ahead of the curve.
Rules of thumbs aside, these factors below will have the biggest impact on your home repairs budget.
Age -The age of the property will play a huge role. New construction (a home built within the last 5 – 10 years) will need very little maintenance. Homes 10-20 years old will need slightly more. Once a home turns 20-30, though, there’s a good chance that major components, such as the roof, hot water heater, and some piping, may need to be replaced.
Weather – Homes in areas affected by freezing temperatures, ice and snow are subject to more strain than homes in areas unaffected by cold weather. Similarly, homes in areas where termites, high winds, heavy rains and other extreme weather conditions or pest infestations will experience more wear-and-tear.
Condition – Some homes are more than 100+ years old, but are in pristine condition, thanks to previous generations exercising careful maintenance. Other homes, however, have been neglected and shoddily repaired over the years. The older the home, the more impact a previous owner’s care (or lack thereof) will impact the home’s maintenance needs.
Location – Homes located at the bottom of a hill (where water drains and collects), in a flood plain, or in other areas that create environmental stresses will also impact the amount of care and maintenance it needs.
Given all these variables, I hope you can understand why there’s no good “rule of thumb” that governs how much you should set aside for home maintenance and repairs. The weather, age, condition, location and type of property that you own will all play a huge factor in determining the amount of money you need to save.
That said, if you have no clue how much you should set aside, here’s a good way to guess:
First, take the average of the one percent rule and the square foot rule. If one percent of your purchase price equals $3,000, and the square foot rule equals $2,000, then your average is $2,500.
Then add an additional 10 percent for each factor (weather, condition, age, location, type) that adversely affects your home. If you have an older home, in a flood plain, in an area that experiences freezing temperatures, add 30 percent to $2,500. That’s an extra $750 a year.
That means that you should save about $3,250 each year, or $270.83 per month, for home maintenance.
Again, this is just a generalized rule. It’s hard to predict how much your home will cost to maintain. The best you can do is make an educated guess based on your home’s unique factors.