BUDGETING FOR HOME REPAIRS AND ENHANCEMENTS
Investing in home repairs preserves the value of your home. You don’t just buy a house, make a mortgage payment and expect that to be the extent of your financial commitment. For many people, their homes are the #1 asset in their investment portfolio and keeping that investment up to date and preserving its value is essential. When you purchase a home, that is just the beginning of the expenses. We budget for expenses that are anticipated, such as utility payments, taxes, and furnishings, but what about home maintenance and upgrades. When setting up your home maintenance and upgrade budget, I am often asked “How much should I budget to spend on maintenance and upgrades on my house each year. “My answer is that you should INVEST 1% of your current home value EACH YEAR into upkeep and enhancements in your home. This investment in preventative maintenance and upgrades will help preserve the value of your home. The calculations are simple; if you own a home worth $300,000, then you should set aside $3000 for maintenance and upgrades each year. These investment dollars are above and beyond utility payments and taxes and are critical to preserving your home’s value longer term.
WHY SHOULD I INVEST THIS MONEY IN UPKEEP?
Major home repairs usually occur due to something breaking in the house, i.e., the roof leaks, the water heater fails, etc. Periodic inspection and small maintenance can prevent more substantial repairs from happening. Preventative maintenance such as caulking, minor plumbing repairs, deck safety maintenance, door adjustments, and weather sealing of windows, would save you money over the time in your home. Preventative maintenance on our house is similar to changing the oil in your car. Many of us automatically get our oil changed when the “change oil light” comes on, or the mileage hits a certain distance, but when it comes to our house, we forget to take the same approach. If you didn’t get your oil changed for $20 periodically, you would need to replace your engine when it stops running at the cost of up to $3000.
Similarly, if you would caulk and paint your window trim where it has separated each year for $100 in materials, you could end up replacing windows, drywall and possibly remediating a mold situation due to the water penetration and that could cost up to $8000. Spending a small amount now prevents potential major failures later. This investment in preventative maintenance SAVES MONEY through cost avoidance due to significant issues and doesn’t let deferred maintenance degrade the value of your home.
HOW ABOUT UPGRADING AND ENHANCING THE HOUSE?
This is always more fun and rewarding than preventative maintenance items we have discussed. Improving our house appeals to our creative side and allows us to make the house more like “our home.” I recommend that people look to categorize these investments into two buckets, “lifestyle” and “neighborhood norms.” Lifestyle enhancements are for your enjoyment and may not bring you a return on your investment, but you should do them. Lifestyle enhancements could be anything from adding a dog door for your pet to converting your dining room into a working office complete with wiring and new shelves. They may not help with resale, but it adds to your enjoyment. Neighborhood norms can include adding new landscaping, upgrading your kitchen, master bedroom or bathroom with updated materials or layouts. When investing in this area, you will most likely spend a little more in that year than your budget, but you will want to focus on doing one upgrade well as opposed to doing two updates with inferior materials or quality. Think of your enhancements as INVESTMENTS, and you will make smart decisions when it comes down to materials and contractors.
Budgeting for these expenses will allow you the flexibility to upgrade when you would like while preserving the value of your house over many years using less money than if you had waited for something to leak, rot or break. You may spend more than 1% throughout your home ownership but rarely will spend less. Plan for the expense and then work on your plan throughout the year, and you will be in a better position to maintain and increase the value of your house over time.
Source: The Trusted Toolbox