How much should I budget as an annual expense in the general maintenance 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’re 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 home maintenance. This is a question that often comes up when we’re putting together an income plan to carry a couple successfully through retirement. It also happens when we’re putting together an estate plan and the trustees want to set aside money specifically for upkeep on your home so your beneficiaries don’t have to sell the house before they’re ready. They understand that anytime you ‘have to’ sell anything, especially an expensive item, the buyer wants a pretty 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 space. Living space must include the basement, attic, and garage in this calculation. For example: 2-story Colonial with attached 2-car garage and full basement. If the assessed size of your home is 2,400 square feet. foot then it’s safe to assume you have 1200 square feet on the top floor as well as the main floor and basement. So realistically, you’re looking at a potential living space of 3,600 square feet. 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 needs to be included in this calculation and not just the square footage you originally purchased for your home.
Therefore, the range in which to budget is from 1% of the purchase price to $1 of the entire square footage of the home. In our example, we assume that houses are selling for $100 square feet and you bought your house for $240,000. The low end of your home maintenance budget should be $2,400 and the high end would 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 par 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 home just sold for $220,000, we immediately know it’s undervalued (22/24 = $91.67 sf). So we would budget at 91.67% (2,400*0.9167), which is $2,200, or (4,000 square feet * 92 cents), which is $3,680. Of course, our budget would work in the opposite way if we discovered that our house is currently valued above average. For example, a similar house is selling for $300,000 or 125% above par, so our low end of the range is $3,000, while the high end is now $5,000.
So why the difference? How does the market value per square foot affect my maintenance cost? When considering a budget for your home, factors such as geographic cost of living, quantity and quality of products and services, and level of outside influences are major contributors to how current market fluctuations affect daily maintenance costs. from your home. The more prosperous neighborhood stores sell products at a higher price compared to the lower income neighborhoods. Those same stores have more specialized products versus more generic brands to choose from. The more affluent stores have a better opportunity to buy in bulk compared to the lower income demographic stores, where the premium is given to smaller packages that get less investment from the customer. Larger homes typically have more amenities, landscaping, and changes in building materials that add a higher ongoing maintenance cost.
Other considerations that will affect your long-term budget when you bought the house:
– Age of the house, roof, windows, extensions, etc.
– Age of appliances, HVAC, plumbing, electricity
– Home construction, vinyl siding, brick, stone, etc.
– Ongoing maintenance prior to purchase
– Proactive maintenance, paints and protective seals and waterproofing
– Warranties on appliances, maintenance
– Topography of the house, high ground or valley, windy without trees or surrounded by trees
– City or Well Water
– Extreme weather
Doesn’t it seem like it should cost that much to keep a house? You’re right, it doesn’t seem like it, but let’s see the list:
age of life for
– Roof: 20 years at about $9/sqft, or $22,800 ($1,140/year)
– Furnace: 15-20 years and will cost about $2500 in today’s dollars ($125/year)
– Hot water heater – 10 years at about $500 ($50/year)
– Water softener (if applicable) – 10 to 15 years at around $500 ($35/year)
– Central Air – 20 years at about $4,000 ($200/year)
– Sprinkler system 30 years at about $2,500 ($85/year)
– Entry 30 years at around $9000 ($300/year)
That’s a total of about $1,935 in today’s dollars and with an inflation rate of 2.5%, most of these costs will be a bit higher. In 20 years, this monthly maintenance fee will be approximately $3,100. Budgeting for long-term maintenance, daily maintenance now ranges from about $465 and later peaked at $2,065. It’s hard to take charge and stick to a budget, especially when there’s a chance you’ll never need it. But as my mother always told me while making fun of the umbrella on the way out the door, it’s better to have one and not need it than to need it and not have it.