Help a dunce with real estate

Several movies, some funnier than others, plumbed this dilemma fairly well "Mr. Blanding's Dream House" and "The Money Pit" are two that I remember. View them and weep. Welcome to the joys of home ownership.

Chip

Our experience with 12 years of home ownership (3 houses in Atlanta, DC and Boston is that you will spend 2-3% of the purchase price just to keep the home in the same condition as when you bought it. About every other year you will need something major, exterior painting, refurbishing a bath or kitchen, window replacement, driveway resurfacing, refurbishing/rebuilding a deck, termite damage.

And this doesn't count yard maintenance, normal cleaning and preventive maintenance on a whole bunch of stuff. But most of that you can do yourself for a minimal cost, as you can for most interior painting.

If you are handy the cost can be a lot lower, but you end up giving up a lot of weekend fun working around the house.

Most people grossly underestimate what this costs. Or they spend a lot less, and the condition of the house deteriorates over time, and they just don't notice. Or they count replacing a 20 year old fridge/range/ dishwasher as an "upgrade" rather than maintenance.

Many people come late to the knowledge that owning a home is expensive. Thumper

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Based on my experience what you are going through is not typical. It sounds like whoever did the inspection on your place at the time you bought it was either incompetent or on the realtor's payroll. You can have a lot of problems with homes built in the '20s and '30s, particularly with energy effciency (insulation was unknown in those days), electrical and plumbing but you should not be having the problems you describe with a house that is 25 years old. It is difficult to imagine why you would need to replace the breaker panel unless you are adding an addition, finishing a basement or making some other major renovation.

Thank you guys, and please, keep the replies coming! I'm beginning to get a clearer picture.

More data: 4 bd, 2 ba, 2500sf, community, not 'gated' not 'posh,' just nice. Very nice looking place, new kitchen and baths (all black granite counter-tops, oak cabinets), two fireplaces, new oak floors, small pool (lower chlorine costs), not a large lot (lower work load).

I guess I made the mistake of not taking the inspector down into the dungeon for interrogation. I assumed the 'infrastructure' of the house (the systems) would be at the same levels the interiors were. Over the past year, I've spent close to 3% of the purchase price in total, working on getting the place up to standards. New furniture and improvements are long forgotten. The mortgage payments (interest, taxes, insurance) run a bit over 6% of purchase price. Total = 9% of purchase price per year. It seems to be working out so that I can budget a max amount each month. I did get a bug guy, so no more roaches and hopefully zero termites. The inspection did mention the electrical panel (made by a company no longer in business, and potentially defective, so I got a repair allowance that would cover the new GE one). The inspection did NOT say that the house is built like a chicken box with lots of holes so the chickens don't suffocate. It should not cost $450/mo to keep the place at 82 degrees in summer, and above 68 degrees in winter.

Just to add to the 'fun' here are some indexed data points:

42k - October 1999 100k - August 2006 (Zillow, peak valuation) 91k - listed for sale November 2008 77k - I bought it May 2009 80k - Jan 2010 (Zillow) 66k - current (Zillow)

I realized a couple of days ago that my 'maintenance' allocation for this coming year is going to be another 2-3% and only after that, maybe, I can think about some patio furniture (once I get the cheap new coat of patio paint, improperly laid down without preparation, off). It's not as bad as "The Money Pit" (or The Twilight Zone) but it is beginning to qualify as a mini version - at least in my mind.

This looks something like the inverse of buying stock. The capital change does outweight the dividend; in real estate, appreciation outweighs the costs of owning; yet the dividend / cost are significant.

The answer as a percentage is tough. A hot water heater isn't 10X the cost for a $1M home than a $100K home. Certain things will scale down. A

10x10 cube has 400sq ft of outside wall to paint but a 40x40 (x 10ft high) has just 1600. 4 times the exterior to paint with 16 times the living space.

You are close on painting, 5 years or so is right for here (NE). My heat/AC is about to die. House was new when bought, 15 yr old now. We have two systems, upstairs and down. Total for both will be about $18K. Hot water heater already went, $1200. Lawn guy gets $2000/yr, fertilizer guy, $500. Big fridge, still not dead, but $1200 or so when it does. A bad dry summer water bill is $800. Last summer, the Big Guy (tm) watered my lawn for free, but the kid was miserable with all the rain.

A rich guy (citation?) wrote to the effect - "When you have a lot of stuff, it costs to maintain it. Everything has a pump or motor, and it all breaks. Eventually, you need a guy full time to hire the workers to fix all your stuff." Similar, Warren Buffet once said he had no boats. When you are rich, everyone invites you onto their boat. Why do I need the hassle of owning one?

The trick is to get invited to enjoy the luxuries of others.

To the OP- Just when you think you are ahead in the home repair and maintainance game- Murphy's Law kicks in.

Chip

You have my sympathy. As you have now learned, one thing you always get before making an offer is copies of all utility bills for the last twelve months.

But the real estate agent said that the home's utilities averaged only $200/mo! Aren't they supposed to tell the truth?

Chip

Oh boy. Analyzing a company is (much) easier - no one I know of gets down to what kinds of bolts GE uses for its manufacturing equipment, or what kind of insulation it has in its offices.

Major systems in a house: Land, access/ location, yard and garden (ecosystem) Roof, walls, doors, windows, insulation, architecture, (for CA, foundation) Plumbing, drains (sprinklers) Electric / gas Kitchen (stove, fridge) Heat and A/C Aesthetic presence (ext/int paint, furnishings, fixtures, etc.) Luxuries (pool, spa, jacuzzi, door openers) (batteries not included)

So to estimate costs of ownership, one would list out all systems and schedule likely costs over time, then work a budget? Then one can budget out specific improvements to tastes or standards, and get a realistic estimate (totally unlike what one puts on the loan app)? All systems are subject to vagaries of technological advances, market tastes and preferences? Again, I apologize if my naivete offends, but most of my life, I have rented.

Btw, I saw the bills for a boat once - 40k a year, inflation-adjusted = 120k. Salt water and metal mix too well, then you have the crew. The guy rented it out by the hour once he started getting bills, pending sale. People say "You learn from your mistakes." I say, "Why learn from your own, when there are so many other people to learn from?"

Please don't forget water (which may soon cost more than gasoline/gal) and sewage, and garbage pick-up, phone, HOA fees- all monthly expenses. Then there are state and local real estate taxes, "special" assessments for neighborhood maintainance. The list is almost endless.

Chip

Forgot a big one-Home Insurance.

Chip

They are supposed to but you should not expect them to. Real estate agents are commission sales people. 100% of their income comes from the commission on the sales they make. Both the buyer's and the seller's agents have one and only one goal and that is to close the deal so they both get paid.

For example, in theory, the sellers agent should be trying to get the highest price for his/her client and the buyer's agent should be trying to get the lowest price for his/her client. In fact, the sellers agent is subtly trying to get the seller to take a lower price and the buyer's agent is trying to get the buyer to make a higher offer because if the buyer and seller do not strike a deal both agents earn zero. That is the reason that you should never ask what the utility bills are. You need to ask for actual copies of the utility bills.

Any real estate agent is working in the best interest of one and only one person and that person is himself/herself.

I may sound cynical but it is cynicism born or experience.

I really hope you are not complaining. When your mortgage is paid off, the cost of paying for a roof over your head is 0 dollars. You will be so far ahead of renters.

Boo hoo hoo. Replacing 30 year components. That's right the 1980s was 30 years ago!!! you are learning what most normal reasonable people in this group learned: Homes are expensive to maintain.

It sounds to me you are doing the right thing and you will be a happy homeowner in the end.

let me ask you this: would you be happy as a renter?

You forgot a real big one: Providing a roof for your children and a place in the future for your grandchildren to play.

Sounded to me like he was trying to put together a budget, long term. When the mortgage is burned, he will have the entire list we are helping him compose, just no mortgage. Everything else will rise. In my town, property tax has gotten out of control so some elderly can no longer afford to live here. That's neither here nor there for the OP, but it's not to be ignored by those choosing the buy vs rent.

Glad I could be your straight man.

Chip

A rule of thumb that I've found useful is that operating a house costs about

5-6% of the current market value of the house. That does not include mortgage principle and interest, but does include utilities, property taxes, repairs, and appropriate upgrades. It obviously varies some, but as a rule of thumb, it's not bad. Also, when you buy a house, you tend to do a lot of stuff in the first few years, so some of this will decline over time.

You probably want to have a energy audit done to see where that money is going and get recommendations on how to fix it. My larger 1940's house doesn't get that bad in the worst of a Texas summer. If you're not aware, there is a federal tax credit of 30% for many energy improvements through the end of the year.

-- Doug

And if he has a 30 year mortgage, it will be the smallest part of maintaining a house by the time it's paid off. 30 years ago around here you could buy a small ranch for 3$0,000, about $140 a month. Retiring that $140 dollar a month payment today doesn't seem like all that much when the water bill is $100, taxes, $200, etc. Thumper