Friday, June 8

Managing the Cost of Home Maintenance and Repair

Thank you to everyone who commented on yesterday's post. I read an article that suggested that most homeowners don't budget enough for maintenance, and certainly it seems like there are many who are as unsure about this as I am.

I think that the key here is certainly to do some planning and budgeting so that I have an element of control. I am going to use my idea of a reserve fund, like a condo would have, to plan for the major expenses. The monthly household budget would be a combination of regular (annual or monthly) expenses along with the amount that gets put into the reserve fund.

Today I will describe how the reserve fund is to be calculated and then we can perhaps look at some other elements next week.

The first step is to make a list of things that would make you say "ouch!" if you had to replace them. My list started with roof, furnace/AC, carpet/flooring, fridge, stove, washer/dryer, windows (broken down by room because I have some newer and some older ones), front door, garage door, deck. Then I also added large expenses that aren't replacement items but maintenance that happens less than once a year: exterior painting, interior painting, tree pruning. I know I forgot stuff, but this is a starting point.

The second step is to estimate how often you need to do each item. For example, I said roof was 25 years, furnace 25 years, etc. This partly depends on how much you spend each time you do it. For example, I know they sell roofing shingles that are rated from 15-50 years with appropriate price differences.

The third step is to estimate when the item was last done. If you weren't the person to do it this might be a wild guess. But you are really planning for when you will do it, so work backwards from the numbers in step 2 if you need to.

And finally, you need to estimate the cost of the item. Use today's dollars and hopefully the interest from your savings account will offset the effect of inflation. So if you were to buy a new fridge today, would you want a $600 fridge or a $2000 fridge (or more if you really like fancy fridges!)? As you start you can ballpark these numbers and update your plan if you get an updated cost.

This is enough to calculate the contribution to the reserve fund that each item requires. Simply subtract 3 from 2 to get the number of years. Multiply by 12 to get the number of months. And divide the cost by the number of months. Voila!

Here is the spreadsheet that I came up with when I did my own quick and dirty version of this (click to enlarge):

I definitely don't know if many of these costs or lifespans are accurate, but I wouldn't be surprised if the estimate ended up very close to the real answer!

What this tells me is that I had better be earmarking $500 per month into long-term planning for irregular expenses or I am going to experience significant pain if a bunch of these happen close together. That turns out to be just over 1% of my house value annually, which is the lower end of what most sources seem to suggest.

I'm not claiming that I should be on the low end though. This is only the irregular expenses. Next week I will look at the regular expenses that occur every year and see what the additional costs for those items might be.

Have a great weekend!


J at IHB and HFF said...

Hello. You previously mentioned 1.5 to 2% of home value annually and this tabular estimate is only 1.2% of home value ($6k on a $500k home). I would be interested to hear your thoughts on the disparity. Thank you.

Anonymous said...

Have you priced roofs lately? It depends where you live, what sort of roof it is, and what sort of square footage, but they are MUCH more expensive than most people think. I have yet to receive a quote of less than $18k + tax for my roof. That's for plain jane 35 year asphalt shingle!

Cheapest cedar quote has been $26k!! Needless to say I'm not going cedar again.

the money diva said...

As I mentioned, I haven't priced anything - I just guessed. Thanks for the info on the roof though. I will adjust accordingly.

This is only the irregular expenses. I will look at regular maintenance such as furnace/vent cleaning, etc. next week.


J at IHB and HFF said...

Sorry, I did not see the irregular point until after I posted.

Roof cost depends upon circumstances. If there is only 1 layer of shingles, you often can skip the tear and disposal cost by laying the new layer over the old. On the other hand, tearing and scrapping 2 old layers will add cost. You want to know if you already have 2 layers.

FourPillars said...

Wow, you're quite a planner, a closet accountant I would say :)

A quick note on the estimated lifespans - some general rule of thumbs I've heard for roof, furnace, windows is that they should last 20 years not 25. However I'm not sure where those numbers come from, perhaps the roofing, furnace & window industries???

Interior paint can last a lot longer than 7 years although I guess that's a matter of personal taste. Some rooms are higher traffic and might have more wall paint damage than others so that might be a factor as well. If you are doing the painting yourself then about $125/room is a good estimate - $300 per room for painters (minimum).

Front door - I would guess this should last forever? Unless it's literally falling apart or you just don't like it I don't see why these need to be replaced very often.

Flooring is another area that I think the lifespan should be longer than 10 years. Again the type of floor it is and how much the room is used could affect this estimate. Also you have $3000 for flooring? Is this for the whole house? Sounds very low although again it depends what you have. We have about 1300 sq feet which has hardwood ($8000 installed) + tile ($2000 and we did it ourselves). $3k might have gotten the cheapest laminate (and nothing wrong with laminate!!)

Deck - this could vary according to size, wood type and complexity ie stairs, railings. My friend just got a cedar deck build last week - about 15' by 15', very low, no railing, no stairs for $6500. If he had used pressure treated wood instead, it would have been around $5000.

Roofs - depends on flat, sloped etc. The last 2 years have seen a huge increase in this cost. I would up this to at least $5k for a small house and $8k? for something a bit bigger.

Furnace - $4k is more realistic.

Windows cost looks good.

Garage door - $500 sounds very cheap.

Front door - $1500 is a really nice front door. If you want, you can go a lot cheaper on this.

Appliances estimate look good.

Sorry to inundate you with all this stuff but we did a gut reno in the last two years (in T.O.) so I actually have an idea of what some of this stuff actually costs. I'm not happy about it either!!!

I'm guessing on the whole that you might want to add 25%? to your overall estimate.

Good luck! The fact that you're doing this estimate and creating a reserve fund is very admirable!


FourPillars said...

On a different note - how did you post the spreadsheet? I want to do that as well but I don't know how?


the money diva said...

4p - thanks for all the detailed comments. I will be updating my numbers and posting again. The spreadsheet is just an image (a screenshot - there are several tools that will do it or you can use ctl-PrintScreen).


Promod said...

Budgeting is boring.

At the risk of being simplistic, saving x% for expenses works well. If you spend more than expected, you'll probably compensate by cutting back on other expenses until you're back in your financial comfort zone.

Your mortgage may come with insurance for repairs. We were fortunate that way. We bought our first home in the spring and our furnace conked out during the first cold spell that fall. Our son was just days old. Luckily, the insurance covered most of the cost. I don't recall the details of the plan. The funny thing is that the coverage was a free promotion from the lender.

It's very difficult to estimate costs and the years to failure.

Much more gets spent on discretionary improvements than breakdowns. For example, the cost of a kitchen renovation can get crazy depending on personal preferences.

Promod said...

I wrote a related post called "The Unexpected Costs of Home Ownership".

I'm doing too much writing on other people's blogs :)