When trying to figure out how much you can afford to spend when buying a home, it’s easy to overlook some of the expenses that come with home ownership. If you stretch your budget to just this side of the breaking point simply to afford the loan payment, taxes, and insurance, you’ve gone above your housing budget.
Homes require maintenance and repairs. If you live in a condo (or certain subdivisions), home maintenance may hit your pocketbook in the form of homeowners association dues. These often cover expenses focused on keeping exteriors looking good, such as landscaping, exterior paint, roofs, and driveways.
If you are not part of a homeowners association, you simply pay for these things directly. You’ll also need to budget for repairs to leaky faucets, broken windows, faulty electrical panels, and so much more. It’s not a matter of if something will go wrong; it’s a matter of when. Regular maintenance can help reduce the number of home repair emergencies, but if you live in a place long enough, you’re bound to experience an unwelcome surprise that requires your time and money.
My most recent example was my miniature water heater. I have a regular water heater, but it’s located a long distance from my kitchen. Before I purchased my mini water heater, it used to take forever for warm water to reach the kitchen. I generally gave up and washed my hands with cold water. I realized that the first half of the dishwasher cycle was using cold water, for instance, so I bought a miniature water heater to provide a ready source of hot water. The big water heater fed the mini water heater, which allowed me to wash my hands with warm water and have a dishwasher that used hot water for the whole cleaning cycle.
One day, however, I went to the kitchen sink to wash my hands, and there was no hot water. I figured I must have thrown a breaker, but nope, that wasn’t it. I called my maintenance crew to check it out, and to my serious disappointment, they reported finding mud under the house in June when things should be bone-dry. The bottom of the miniature water heater had fallen out.
Hot water was travelling from my big water heater to my mini water heater, and then promptly emptied under the house. As you might have guessed, my water bill went up and so did my electric bill. Plus, I got a surprise gas bill because I drained my propane tank completely. As if that weren’t enough, the hot water under the house made my hardwood floors swell so much, I couldn’t get one of my doors open. Although many of the boards dried out and returned to their original positions, a couple of boards cupped a bit. I can feel them when I walk. This, my friends, is home ownership. You have to budget for the unexpected.
You also have to budget for the expected. You may not know the exact date, but you know someday you’ll need a new water heater, new carpet, a new coat of interior and exterior paint, a new roof, and new kitchen appliances. Someday eventually comes. If you set up a dedicated savings account and contribute to it every month, you’ll be ready when someday arrives.
If a new roof costs $25,000 and you have 25 years left on your roof, contribute $1,000 per year to cover the cost. While you’ll earn interest on that money, you also need to consider the fact that inflation will increase the cost of the roof, so don’t dip into that fund. I recommend putting 3-5% of the value of your home in that savings account every year. If your home is worth $450,000, that amounts to about $1500 per month. That should cover your taxes, insurance, regular maintenance, and over time, the unexpected repairs. Your future self will thank you if you start putting money aside today.
If you have questions about property management or real estate, please contact me at [email protected] or call (707) 462-4000. If you have an idea for a future column, share it with me and if I use it, I’ll send you a $25 gift certificate to Schat’s Bakery. To see previous articles, visit www.selzerrealty.com and click on “How’s the Market”.
Dick Selzer is a real estate broker who has been in the business for more than 45 years.
