How much should a homeowner earmark for home repair costs?
For many folks, owning a home is one of the largest – if not THE largest – single investment they will make in the course of their lifetimes. Of course, there’s the purchase of the home itself, which often comes with its own sticker shock. Then there’s the cost of all the furnishings and accessories – from lamps to light it to curtains to maintain privacy – that are required to fill a house and turn it into a home.
While many new homeowners are prepared for these initial costs, they might not necessarily be prepared for the costs of maintaining a home. Overall, experts agree that homes are a wonderful investment that appreciates over time, and the cost of renting (spending every month without obtaining equity) far exceeds the cost of maintenance in the long run.
So how much is enough for a homeowner to earmark for repairs and maintenance? The most popular and most often-cited rules of thumb is the One Percent Rule. This adage maintains that you should budget one percent of your home’s purchase price each year for general maintenance costs. (That means that if you purchased your home for $400,000, you should budget approximately $4,000 a year for repairs and maintenance.) That number is deceptive, since you won’t typically spend that amount each and every year. If you’re buying a new home, for example, everything in it is new, so in theory, major components won’t need to be replaced for several years. Even in an existing home, maintenance costs will vary from year to year. In some years, you might need to address roofing issues, while in other years, weatherstripping may be your largest expense. The key is to remember that the one percent is an average over time that you should plan for and budget as you are able.
Also, the one percent rule might be deceptive depending on where in the country you live. (A recent Realtor.com survey, for example, found that New Orleans residents spent an average of $31,650 on repairs after recent storms – far above the one percent standard.) In fact, some of the nicest areas of the country can have some of the highest maintenance and repair costs, when you consider what salt water and constant sun can do to exterior surfaces in a beachfront home.
Of course, remodeling and renovations are another cost you should plan for. (In fact, the Joint Center for Housing Studies of Harvard University found that U.S. consumers spent $361 billion on home remodeling in 2016!) Once you move into a home, it’s only natural to want to improve upon it and leave your stamp on the space. Whether it’s a full-scale remodel to bring your kitchen up to date or a small renovation to replace dated appliances, these are costs that you should consider. Plus, it’s important for your home to keep pace with improvements in surrounding residences if you want to sell it in the near future.
With a little foresight, you can easily plan for the expenses that come with home ownership – and you’ll be glad that you’re investing in your family’s financial future!