One often underestimated financial fact of home ownership is the amount of money needed for maintenance and repair. Savvy home buyers know that they need to look for homes less than what their lender says they’re qualified to buy—money needs be left over for inevitable expenses such as ongoing maintenance. But how do you predict how much you’ll need to save? There are many variables that affect how you set your budget for home repair, so you’ll need to estimate based on your home’s individual factors.
Method #1: Rules of Thumb
One way to ballpark monthly savings for home repair is to use the one percent of sale price rule. If you spent $300,000 on a home, you’d allot $3,000 per year or about $250 a month for maintenance. This rule is meant to average annual costs needed in a ten year period rather than suggest your maintenance cost will be consistent every year. While this rule gives you a basis for coming up with a number, it has its flaws. If you got a good deal on the home because of its deferred maintenance, then obviously you’ll need more than the average amount of savings for bringing the home into the shape you need to live in, as well as the ongoing costs to keep it in good condition. Whatever you saved in the purchase price, you could be making up for and then some in rehab or replacement costs. And if you bought a home during a peak real estate market, the one percent rule could generate too large a number for repair.
Another way to estimate monthly savings is the square footage method. Save one dollar for each square foot of your home. So the 2,200 sq. ft. home owner would save $2,200 per year (again, intended as an annualized cost over a ten year period) or about $183 per month. The logic here is that the more square feet of home you own, the more you need in savings for maintenance. Because the cost of labor and materials varies quite a bit by region, this estimate could be on the low side depending where one lives.
Method #2: Biggest Impact Factors
If you use one of the rules above to estimate a budget for ongoing maintenance, examine the following factors in your own home to help fine tune the accuracy of your number.
Age of home. New construction and homes between one and nine years need very little maintenance. Homes 10 to 20 years will need some more investment. Homes over 20 years will likely need some major components repaired or replaced such as roofing, a hot water heater, or an air conditioner.
Condition and past care. The older a home, the more the previous owners’ care affects the condition. A home’s structure and mechanical elements face wear and tear from weather, use, and often neglect. If you’re lucky enough to have a good working HVAC system, continue to invest in regular tune ups to lengthen the life of this expensive mechanical necessity. Homes don’t only need repair when something goes wrong, they need regular maintenance to keep things in their best condition.
Location. If your home is at the bottom of a hill where water collects or drains, is in a flood plain, or is in a region with harsh winter conditions, it will likely face more than the average wear and tear.
So now how do you adjust your budget number? Let’s say your home cost $300,000 and is 2,200 square feet. Your rule of thumb budget numbers from previous examples were $3,000 and $2,200. Take the average of those two numbers, $2,600. Now add 10 percent more for each additional risk factor category your home falls under (age, condition, location). Let’s say your home is 15 years old, has faced some neglect, and is at the bottom of a hill. Add 30 percent to the $2,600 to arrive at $3,380 as your annual budget, or $282 monthly.
Method #3: Create a Likely Repairs List with Costs
If you would rather add up hard numbers to estimate your budget, take a look at the list below. These are some common home repair and maintenance items you’ll likely need to make in a ten year period of living in your home. You can research pricing for the style of items you desire and put together numbers that reflect your taste and needs.
|Annual HVAC Service ($250/yr x 10)||$2,500|
|Hot Water Heater||$1,200|
Take the total of these ten-year costs and divide by ten. $46,300 divided by 10 equals $4,630 and serves as your annual savings budget, or $386 monthly. You may not need the full amount one year, but require more the next year. Homes are often unpredictable. Despite this list, you might need to replace a hot water heater twice in a decade and not have to replace a furnace at all. While you can’t foresee every possible need, setting up a budget allows you the ability to maintain the best condition possible of your home and puts you in a better position to hold value when it comes time to sell.