Monday, June 11

More Planning for Future Home Maintenance and Repair

It's fun in a sort of geeky way to see how much you can play with a tool like the reserve spreadsheet I set up. After reading the comment by Four Pillars on my recent post about most people not staying in their home for more than ten years I wanted to add a column for probability of payout so you can say there is a 95% chance of staying for one year, 85% after 3 years, etc. However, I decided that if I did that then Promod would REALLY have reason to say that I was being too complicated, and I'm not sure how much value it would add to the model anyway.

So I think I will leave it as is, and post some suggestions for how to use this:

  • Calculate this amount once a year, like condo fees.
  • Pay this amount into a bank account every month.
  • If a repair comes up that is on this list, use as much from the reserve fund as you need.
  • If a repair comes up that is not on this list, do not take money from the reserve (unless you really need to) but consider adding it to the reserve fund list next year.
  • If you don't have enough money to cover a repair then you have to do a "cash call" - i.e., the owner has to come up with the shortfall.

Second and subsequent years:

  • Re-estimate the timing and costs on each item unless you feel sure that you have it correct already. Don't forget to move the Last Done and Next Due dates forward!
  • Now you have to factor in how much you already have in reserve. A simple way to do this would be to allocate it to one or more specific items that have the highest monthly cost because they will be more expensive and/or coming up sooner. (The updated example at the end of this post shows a hypothetical 2nd year, assuming I put $500 per month in and didn't spend it in the first year.)
  • Add anything you forgot last year and reset anything that was done this year.

Now the reason that I wanted to do this is to manage my costs. $500 per month is a pretty hefty cash flow. So when you look at the spreadsheet, it becomes clear that there are only two ways to save money:

  1. Do the repair as far in the future as you can. (Give the item a very long lifespan)
  2. Lower the cost of the repair.

I think the Four Pillars was correct in identifying that this model assumes that you are staying in the house forever and all these repairs will eventually need to be done. So please adjust this for your own situation. Here are some other ways to manage the costs and keep your monthly contribution low:

  • The more you put on the list, the higher your budgeted contribution will be. So if you think that a repair is unlikely to occur while you own the property, don't include it or give it a very long lifespan so you are contributing very little toward it.
  • Consider splitting into two reserve funds: one for repairs (necessary items) and one for renovations (nice to haves). Make your repair contribution your priority expense, and only contribute to the renovation fund if it is important to you and you can afford it.
  • Look for repairs that can be postponed through inexpensive preventative maintenance.
  • If a repair yields a cost savings (such as a more energy efficient appliance) consider doing it sooner than another repair of similar priority and using the savings to offset your required contribution for the year.

I also noticed that when I did year two (below) my monthly cost was lower because I allocated all my year one savings to my upcoming big ticket items. So if there are expensive items with shorter amortizations they will disproportionately increase your required monthly savings. (Again, defer everything as long as you can!)

Anyway, here is the spreadsheet again (click on image to enlarge). I have updated some costs based on feedback on the first version and I have moved it forward to a hypothetical year two to show how that affects things. Note how my contribution dropped even though I have increased some costs!

I think that this is a great tool for starting to manage and save for irregular expenses. I hope that you enjoy it. If you want the actual spreadsheet, please email me ( at gmail) and I will send it.


Promod said...

Thanks for not using probabilities, MD :)

You're certainly thorough, which is commendable.

Four Pillars comments on the likelihood (probability?!?) of staying in the same home for 10 years. If the intent is to resell, then maintenance may be more cosmetic than substantial (e.g., repainting). Buyer beware!

Some purchasers only want the land. They tear down the previous house and rebuild. All the maintenance and renovations lost.

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