How much should I budget for the annual general maintenance expenses of my house?
Where most people ‘take it for granted’ until they need to replace the windows at $ 300 / pc or the roof at $ 10 / sqft. And if you are retired and most of your money is in your IRAs, now we have to add taxes on top of the cost.
While teaching one of our retirement planning classes here locally, one of our students had an interesting question about how much he should budget for general house maintenance. This is a question that usually comes up when we are putting together an income plan for a couple to retire successfully. It also happens when we are developing an estate plan and the trustees want to set aside money specifically for the maintenance of their home so that their beneficiaries do not have to sell the home before they are ready. They understand that anytime you “have to” sell anything, especially a high-value item, the buyer wants a good deal.
There is a general rule of thumb of 1% of your purchase price (current market value) or about $ 1 per square foot of living area. The living room should include your basement, attic, and garage in this calculation. For example: Colonial 2 story with attached two car garage and full basement. If the estimated size of your home is 2400 square feet. foot so it’s safe to assume you have 1200 square feet on the top floor, as well as the main floor and basement. Realistically, you are looking at a potential 3,600 square feet of living space. A two-car garage is typically about 440 square feet. So if you add it all up, you have a little over 4,000 square feet that should be included in this calculation and not just the square footage that your home originally purchased.
Therefore, the range in which to implement your budget is from 1% of the purchase price to $ 1 of the full square footage of the house. In our example, assuming the houses are selling for $ 100 square feet and you bought your house for $ 240,000. The lower limit of your home maintenance budget should be $ 2,400 and the upper limit should be $ 1 of total square footage or $ 4,000.
Now let’s talk about the $ 100 per square foot. If we put this as a value, we can simply research what houses are currently selling for in our neighborhood to see if we are above or below that factor. For example, if we find that a similar 2,400-square-foot house sold for $ 220,000, then we will immediately know that it is undervalued (22/24 = $ 91.67 square feet). Then we would budget at 91.67% (2400 * .9167) which is $ 2200 or (4000 square feet * 92 cents) which is $ 3680. Of course, our budget would work the other way around if we find that our house is currently valued above. For example, a similar home is selling for $ 300,000 or 125% above par, so our lower end of the range is $ 3,000 while the upper end is now $ 5,000.
So why the difference? How does the market value per square foot have an effect on my cost of ownership? When considering a budget for your home, the geographic cost of living, the quantity and quality of products and services, and the level of outside influences are the main contributors to how current market fluctuations affect your home’s daily maintenance costs. Wealthier neighborhood stores sell products at a higher premium compared to lower-income neighborhoods. Those same stores have more specialized products versus more generic brands to choose from. More affluent stores have better opportunities to buy in bulk compared to lower-income demographic stores, where the premium is put into smaller packages that get less investment from the customer. Larger homes often have more amenities, landscaping, and building material changes that add higher ongoing maintenance cost.
Other considerations that will affect your long-term budget when you bought the home:
– Age of the house, roof, windows, additions, etc.
– Age of electrical appliances, air conditioning, plumbing, electricity.
– Home construction, vinyl siding, brick, stone, etc.
– Ongoing maintenance before purchase
– Proactive maintenance, protective paints and seals and waterproofing
– Guarantees of electrical appliances, maintenance.
– House topography, high ground or valley, windy without trees or surrounded by trees
– City water or well
– Extreme weather
Doesn’t it seem like it should cost so much to maintain a home? You’re right, it doesn’t seem like it, but let’s see the list:
Age of life for
– Roof: 20 years at approximately $ 9 / square foot, or $ 22,800 ($ 1,140 / year)
– Oven: 15 to 20 years old and will cost around $ 2,500 in today’s dollars ($ 125 / year)
– Hot water heater – 10 years at approximately $ 500 ($ 50 / year)
– Water softener (if applicable) – 10-15 years at approximately $ 500 ($ 35 / year)
– Central Air – 20 years at approximately $ 4000 ($ 200 / year)
– Sprinkler system 30 years at approximately $ 2,500 ($ 85 / year)
– Entry 30 years at approximately $ 9000 ($ 300 / year)
That’s a total of about $ 1935 in today’s dollars and with an inflation rate of 2.5%, most of these costs will be slightly higher. In 20 years, this monthly maintenance fee will be approximately $ 3,100. When budgeting for long-term maintenance, daily maintenance now has a range of approximately $ 465 and then peaks at $ 2,065. It’s silly to take over and stick to a budget, especially when there is a chance that you may never need it. But as my mother always told me while making fun of the umbrella walking out the door, it is better to have it and not need it than to need it and not have it.