That might work where you live, but not around here. Houses are expensive here. I don't mean big and fancy, just expensive. So what goes for $800k here might go for $150k elsewhere. 5% of $800k is $40k/year. Way too high.
Good point, re: maintenance as % of market value. Joe pointed out scalability as well. There must be some way to estimate normal maintenance costs that would be useful to prospective buyers.
Heating and A/C are a major system these days. Residential units peak out at 5 tons, so maybe estimates of bills and replacements could be made on that basis.
Now I understand. My father always said invest 2% of your home's worth every year into upgrades to stay current and to prevent your home from becoming unsellable.
Aren't the repair and replacement, taxes, and utility bills as proportionately high as well?
Chip
Florida caps tax increases at 3% annually, for existing homeowners.
The property management companies with a maintenance crew and very carefully scheduled major maintenance are probably much more efficient than individual homeowners. The rent / buy decision is interesting. The downsides are quality of management, rent increases, and condo- conversions, but virtually all of the maintenance is covered by the rent - just one phone number to remember.
They also have a Homestead exemption for State Taxes. Helped me when we lived there.
Chip
Again, that is highly variable. In Phoenix a good rule of thumb for a reasonably well insulated house is one ton of A/C for every 450 square feet of floor space. You don't need a very big house to get past five tons.
Talk to an insurance guy. The house has insurance which is scaled according to the cost of rebuilding/replacing the building itself. While the building price may vary with localities, the vast majority of the huge price differences between a place with $150k houses and a place with $800k+ houses - is the land value.
An insurance guy may have some good idea about the breakdown.
Then, once you know the building cost/replacement value - the price of maintenance and such should be scaled to that, not the land value.
Very good suggestion.
no.
I read you. Doing a little late-night browsing, I found "First Time Homeowners Survival Guide."
"For many new homeowners, the euphoria that comes with buying the perfect new house can soon turn into total panic."
Most books on the subject seem to cover saving on repairs, but understanding the systems should lead to scheduled expenses. I'll let you all know if I have an epiphany.
My major problem is insulation - 9% of the purchase price. That budget- bullet, together with maintenance catch-up bills, became massive confusion. I arrived at that realization after carefully reading and re-reading everyone's replies here. Thank you for the time and thought. I appreciate it!
Maybe start by reading this 1998 Wall Street Journal article:
I find these numbers ridiculous. Maybe if people would be willing to live with a little wear and tear, and not need a whole new kitchen or bathroom every ten years, their lives would be a lot simpler.
... so assuming three times the purchase price, about 3.73% on average annually (that includes land value, so it can be marked down). It looks like the 3% number is a reasonable maximum benchmark, but with upgrades included. I've got to mention Stephen King and "Rose Red" - the ultimate home nightmare, a house that renovates on automatic debit.
A buyer should also get maintenance records, maybe especially on a 10- year old house. Based on my experience, I think the article is a bit biased towards spending money. Honestly, I'm a little surprised that there isn't more above board talk specifically about maintenance costs. But, I'm a dunce at real estate. It should be on IQ tests.
"A house built in 1790 has been completely renovated once, in 1950. A house built newly in 1950 in the same neighborhood has just been completed. Both are for sale. Which house will decay to the ground first?"
"A population moving West at the rate of 30,000/yr departs Detroit at
3 am. A population moving East at the rate of 50,000/yr departs Los Angeles at noon of the same day. When will they arrive in Phoenix?"George.
First kudos to Elle for producing an article from 12 years back. Hi Elle!
The article talks about common improvements such as finishing a basement. That's not a "need", but a "want."
The rest, however, is right. But. We have a nice house. Ok, a McMansion, I suppose. The pickled maple wood first floor might be ready for a sand/ refinish (after 14 years) but we take our shoes off at the door. In another response, I mentioned the hot water heater went, and was replaced, and the house heaters are ready to die as well. The driveway has been resurfaced once, and is due for another. There are always things that one may want to do to improve their house. We have "only" two garages. I just spent $6000 on a guy who does digging/moving rocks (what do you call these people?) just so there's room to move the snow yet leave a third car outside (no third garage) when Jane 2.0 gets her license in a few years. There's about $2000 worth of work to finish this off. Appliances go. Fridge, dishwasher, microwave. All are still original, but I'm bracing myself. Toilets fail. There's a wax ring between the toilet and floor that dries out. If not replaced, you'll find a leak after 20 years or so. Roof will go eventually. Someone else said take the value minus the land. Brilliant. That will get closer. The scale isn't exact even then, but that's a great point. Even switches go. Dimmers more so. I'm sorry I haven't tracked every cent. That would be interesting.
There's also a huge difference between those who can buy a new $10 dimmer and those who have to pay $100 to an electrician to replace it. Not passing judgment. I do my own electrical and woodwork but I don't mow lawns. I'll paint a room, but not get on a 25 foot ladder to paint outside.
I know, 12 years is a little dated. :-) Believe me things are probably worse for those poor sods who bought at the housing market peak.
I looked for the updated, 2006 version of the article but cannot locate it for free on the net right now. One of you superhuman web researchers can do it. :-)
I have been referencing this article for about a decade and always paid special attention to the part about those of us who are often DIYers and that this factors in enormously into savings when it comes to maintaining a house. (She says as she attempts to get dried wallboard compound off her work blouse. From a porch ceiling paint job, no less!)
I think the last point is especially important for those of us in middle age or later. The cost in health care if we have an accident may exceed the cost of having someone else do the job.
Appliances are not designed to last as long, these days. It's hard to 'talk house' without specifics, so I'll do one. A girlfriend in L.A. once saw a chambers gas stove in a second-hand shop, cheap. She wanted it, though it weighed like 400 lbs. (iron, chrome). It was built in the 1930's and had safety valves so children couldn't activate the gas. To cook a turkey, you heated it up, and because it was iron and insulated, after 30 mins. you could shut it off and let the turkey finish cooking. It had a built-in griddle and underneath that, a fish frying pan. Really, it was beautiful, and a 100% functional antique. The owner of the second-hand shop was proud to deliver it, proud that someone had recognized the value.
I wish I could cite the article I read a couple of years ago, that explained today's houses are built to last about 50 years. That goes beyond me. I cannot fathom which dynamics, be they changing style and technology, or mass-production cost savings, would become so important. I've read snippets about doing away with 30-year mortgages.
I just fixed a kitchen faucet - when it flew apart (a design defect) water splashed everywhere. The repair cost $1.49 for three tiny bolts v. some $285 for a replacement faucet, plus the plumber's bill. I'm not lazy, just house-cost-naive. A Landscaper lives in my neighborhood, so does a pool guy. I met a plumber who drove a black luxury car. My dentist charges less per hour than my electrician. Interesting.
the one you buy.
At the outset (see above) this thread was focused on the financial planning aspects of home ownership. Lately it has focused on home maintenance details.
In an attempt to swing the comments back to financial planning, I will restate something I have maintained for years.
One of the biggest problems in personal finance today is the tendency to buy more house than we can afford ("too much house").
It starts by buying the nicest home we can, stretch to get the down payment and monthly PITI, and then watch while other homeowner costs (upkeep) strain/deplete our cash reserves, leading us to borrow money for cars, education, trips, etc. The required monthly debt costs in the midst of continuing upkeep (it's always something) strains our cash flow further, creating the need for more debt.
Bottom line: The inability of most people to save sufficiently for major purchases, retirement, etc., began years ago with too much house.
I'm going with a 2.5% annual on average, but will try to make system- specific estimates so I can get a schedule. I didn't buy too much house. Instinctively, I got no more than what I needed and wanted, so I'm not sinking, but it is disconcerting to see that dressing it up with furnishings and TLC is deferring to getting it soundly operational. It's not "bad" just not cost-efficient, and certainly unexpected. Loan officers, real estate agents, and home inspectors could do a lot more to make the buyer aware of the expenses associated with their prospective dream home.
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