When most buyers look at the costs of owning a home, they consider the mortgage, taxes, insurance and utilities. These are fairly certain and predictable, although paying cash subtracts the mortgage. Folks may have a vague idea about maintaining and repairing the home, and have likely heard the 1% rule of thumb – to figure on spending 1% of the home’s value annually. I feel that is a pretty good estimate. But what about improving the property?
Having sold 350 homes over 26 years, owned a home for 27 years, and 2 rental homes for 9 years, gives me a pretty good feel for what the actual costs are for not just repairs and routine maintenance, but upgrading the home for more enjoyment while living there, and a higher resale value. Bear in mind that newer homes and condominiums may take less, and these are just average amounts. If you like premium finishes, it will be more. If you are very frugal, it will be less.
I began with the average home value in St Louis, $220,000 at the average age of 35 years old, and looked at all the expected improvements over a 30 year period. For a 20 yr life, I used 1.5. Some items blur the line between repairs/maintenance and improvements. If you track these costs for capital gains purposes, that list is as good as any for telling the difference. Most people will pool these funds together anyway. I then divide the total by 30 to get annual improvement cost, and take off a little for projects that are Do It Yourself, and some that are insured (roof, siding). You can then add your 1% maintenance cost in and you have your final dollar target to be saving every year for maintaining and improving your property. The total I came up with is in the 3% range — 1% for maintenance/repairs and 2% for improvements. For the typical STL home, that is $2200 + 4400 = $6600 annually. That may sound like a lot or a little, depending how much you are used to spending. Most folks will not set this amount aside each year, and simply wait for items to break, or do improvements as cash allows. The problem is that you put off projects, and/or borrow to get them done. If you take the long view, however, you will be ready to take on the new kitchen, baths, flooring, basement, closets, and much more on a regular basis! As time goes on, you can re-adjust your savings as needed, and increase for inflation/home appreciation.
I have worked up a list of improvements for the above figures with estimated costs if you wish to view, just contact me. For outside sources, I seen a few home improvement costs sheets, and I feel this one is pretty accurate:
Bottom line — You are already spending about 10% of home value each year on the basics (5% mortgage, 2% tax & insur, 2% utilities, 1% maint). BUDGET the extra 2% each year to IMPROVE your home for optimum enjoyment and future value. If you don’t use it, it is a nice bonus for something else. But this will make it, and keep it, the dream home you envisioned.