“Lumpy” Home Repairs

How much should you earmark for annual home upkeep?

According to one LA-based Realtor:

Homeowners should have 1% of the purchase price of their home in savings for improvements and surprise expenses. That is the absolute minimum. It’s better to have 2% to 3% socked away somewhere.

–“Home Costs Keep Going Up“; The Wall Street Journal (12/28/09)

Before parsing this advice, however, first an aside: notwithstanding the article’s headline, it gave no examples of how home costs are rising at the moment.

In fact, big ticket items like property taxes, as well as capital repairs like roofs and exterior painting — not to mention major appliances — are now getting less expensive, thanks to the recession.

Back to upkeep . . .

Yes, I agree with the 1% rule, but with a major caveat: home repairs are likely to be “lumpy.” In other words, most years, homeowners will likely spend well below 1%; however, intermittently, they’ll likely overshoot that quite a bit.

That’s because things like roofs, exterior paint, and furnaces can last a decade or longer, but when they go . . . they go.

In the meantime, I’m a big fan of home warranty plans, which for a fairly reasonable monthly premium cover homeowners against major, unexpected outlays.

In fact, my standard advice to my Buyer clients is to get coverage for a calendar year, until they know their home, what reliably works — and what doesn’t. After that, they can re-assess as appropriate.

P.S.: Is The Wall Street Journal getting sloppy with its headlines? Consider this one, also from today’s paper: ‘Adjusted for Inflation, Dow’s Gains Are Puny.’ The article then goes on to note that the Dow, currently at 10,500 and basically unchanged from a decade ago, is only 8,140 when adjusted for inflation.

Since when does a 2,000 point drop qualify as a “puny gain“??

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

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