Do you own your home? Or at least have a mortgage and the bank owns your home? If so, you need a home maintenance budget!
A special home maintenance budget (or line in your budget) will let you take care of repairs when they happen and even get into preventative mode to keep disasters from happening.
Why You Need A Home Maintenance Budget
Have you ever woken up on a Monday morning, jumped in your shower, and suddenly there is no more hot water? After THAT wake-up call, you dry off and drag yourself to wherever your hot water heater is located. But before you get there, you find you are stepping through a bunch of water? Yep, your tank went ka-put!
You call the plumber and find out it will be almost $2,000 to come out there and install a new hot water heater and bring all the connections up to code. (Side note: ask me how I came up with that figure… You’ve got three guesses, but I expect you’ll only need one. Yep, I had to have the hot water heater in my rental property replaced last month! So actual costs – $1,799 plus $95 initial call fee – here baby!)
Doh! There goes your emergency fund! Or now you are carrying credit card debt for a few months until you can pay it down.
Wouldn’t you feel better if you could just pay for it all in cash? Maybe even negotiate a discount for paying in cash?
Protect Your Home’s Value
Without proper maintenance, you will quickly lose the value in your home. When you were house shopping, how many times did you look at a house and ask yourself whether you wanted to get it up to date on the maintenance?
Even if you aren’t looking to sell soon, you will still want a good home value. If you want to refinance your mortgage to get rid of PMI, an appraisal will be required. The appraisal price will come back lower than you expect if the appraiser sees signs that you have not maintained your home.
It is typically easier, less expensive and less stressful to take care of maintenance items as they come up rather to wait until just before selling to take care of these items. And some home maintenance items must be addressed immediately to prevent other problems.
Water damage can lead to mold and seriously affect health your health. Many people are allergic to mold and exposure can trigger these allergic responses. Increased asthma attacks are also common in homes with mold damage.
To further exacerbate the maintenance issue, water and mold damage may not be covered by your home insurance. Sudden damage, such as that caused by a storm, is covered by an insurance policy. However, water damage caused by failing to maintain your home or negligence is often excluded from your policy. And many policies also exclude mold damage and mold remediation costs.
Do Home Maintenance When It is Convenient to You
If you properly budget for home maintenance issues, you’ll be able to address problems when they are more convenient to you. You won’t have to wait until a sudden windfall of money (like Christmas bonuses) to take care of that air conditioner. You wouldn’t want to go all summer without air conditioning, now would you? With money budgeted and put aside specifically for home maintenance, you’ll be ready to tackle it as soon as the problem comes up instead of waiting days or weeks through the heat.
Some things, like say fence repair, may not be as critical as an air conditioner or a hot water heater. But these things still need to be addressed. If you have properly budgeted for home maintenance items, you can address these less urgent repairs during the weekend or a holiday break. With a good budget in place, you won’t feel the need to work overtime or through the weekend and holidays to make the extra money to pay for repairs.
How Much to Budget
You could go through each item that is likely to require maintenance, like your appliances, roof, gutter, and all the rest of it. But really, that’s a lot of work. And we like the easy way around here. And we honestly don’t know what the costs will be in 10 or 15 years from now. Some costs will go up, while others may go down. (Example of costs going down: Elon Musk says Tesla solar roofing will cost less than a “dumb” roof)
So in an effort to maximize the Pareto Principle (20% effort, 80% results), I like rules of thumb. A good rule of thumb is to budget 1% of your home’s value to home maintenance every year.
For a $250,000 home (value, not purchase price!), then you should budget $2,500. For a $500,000 home, you should budget $5,000. And so on…
Sure the technical analysis may be more precise, but that’s a lot of work for nearly the same answer.
Up Your Budget If…
Now, we know that not all house maintenance budgets are created equal. There are some cases where you’ll need a bigger budget. I recommend upping your budget by 10% (of the 1% not of your home’s value, thank you!) for each of the following factors:
- You have an older home As the home ages, you may want to increase the budget to 2 or 3% of the home’s value. Appliances, roofs, and fences all have useful expected life spans. You can count of having to replace most of these things every 7-20 years, depending on what it is. So a brand new house may not need as much maintenance as a 10 or 15 year old home which will be less than a 30 year old home.
- You have a historic home If you have a historic home or a house over 50 or 100 years, you might as well up your budget to 5 to 10% of the home’s value. It seems like these houses are just full of repair issues! (That’s two points on your budget, by the way, for an older home and a historic home)
- You have expensive features on your home You may also want to take into consideration special maintenance items that may be more costly. For example, pools and hot tubs can be quite costly when you have to replace pumps, linings, or covers. A cool home entertainment or movie room will probably cost more to keep all the electrical wiring and components working. These factors should increase your home maintenance budget.
- You live in an area prone to cold temperatures Freezing temperatures, snow, and ice will all contribute to added home maintenance issues. Frozen pipes and fallen tree limbs are common trouble spots for homes in colder temperatures.
- You live near the ocean The beach may be pretty, but the salt and sand can do a number on your home. Exteriors will need to be painted more often. Basements and ground floors are subject to more flooding and other water damage issues. Your whole house is subject to more mold issues.
- You live in a flood plain Even if it doesn’t flood in any given year, your home is likely to be damaged by water during heavy storms.
- You consistently blow your home maintenance budget If after a few years, you find that you haven’t budgeted enough money, you’ll need to adjust. Some houses, for whatever reason, just have the home maintenance blues. And you’ll have to deal with them. So up your budget as necessary.
You can also decrease it by 10% if you live in a multi-family unit (condo, townhouse) where the HOA is responsible for things like roofing and exterior maintenance. That has another caveat though: only if your HOA is well funded. If they do not have reserves, then you may get hit with a special assessment to cover these maintenance costs. If your HOA does not carry suitable reserves, you’ll need to up your own personal reserves for when that assessment comes. Not if, but when. Because maintenance eventually has to be done.
Don’t Forget Rental Properties
When you are considering how much to charge in rent, you should include the cost of home maintenance in the rental price. Remember, as the landlord, you are responsible for fixing that hot water heater when it starts leaking!
My personal experience as a landlord also tells me that you’ll end up replacing carpeting and painting the walls more often in a rental unit than you probably would in your own home. Those tenants moving in and out are hard on the rental unit!
If you have a $200,000 rental property, you would want to include $2,000 in maintenance costs each year, on top of your mortgage, property taxes, HOA, insurance, and any other regular costs for owning the property.
Put It In A Special Home Savings Account
Every month that you don’t use all or part of your home maintenance budget, be sure that you put it into savings. That way, it will be there when a big bill comes.
I’ll go so far as to recommend a special sub-account or at least a column in your spreadsheet to earmark the money specifically for home maintenance. The last thing you want to do is to spend your “savings” on a car or a vacation and then have an emergency or urgent home repair bill.
As you calculate your emergency fund and financial independence/retirement numbers, don’t forget to include the home maintenance budget either. It is often overlooked but can become major issues if not included.
If you do this month after month, you’ll be better prepared when the hot water isn’t so hot. And the roof has hail damage. And the fence has a broken tree limb on it. All in the same week.
PS This does not include home renovation projects – just home maintenance!