State Farm says “A rule of thumb is to set aside 1%-4% of your home’s value for a home maintenance fund”. Aside from the fact that this is a huge range, it seems questionable. If a house is brand new, for example, it will be worth more but shouldn’t cost as much to maintain. Does “home’s value” include the land? If we want to use a percentage of “value” should we start with what it would cost to rebuild the house at today’s prices?
Also, I’m not sure that these formulae are valid for keeping a house in like-new condition. People in our part of Florida will either bulldoze a house after 20-30 years or do a major renovation ($100-200/ft), often back to the studs.
State Farm considers costs for the roof, HVAC, water heater, garage door opener, windows, and appliances. But this list isn’t complete and if you had all-new items in all of those categories your house could still be extremely shabby.
Our sojourn thus far in a 20-year-old house has taught me a lot about life limits. I recently learned about the thermal expansion tank attached to the water heater. This prevents excessive pressure from developing in a house’s water lines if the system is sealed off from the municipal water supply via a backflow preventer (see Supreme Court saddens the guys working at our house today). As soon as our backflow preventer was rebuilt, we began to notice that sometimes water pressure was initially high when opening a faucet. Our next-door neighbor is a senior engineer for a Detroit automaker and my go-to source for everything related to the house. He said that he’d had the same problem when his thermal expansion tank had failed internally. We looked at our water heater (installed 2020) and there was no tank at all! (Due to the failed backflow preventer, any excess pressure was previously absorbed by the city water supply.) The plumber who put a tank in said they cost $300 and last 2-5 years (they have a one-year warranty). So that’s an extra $75/year in maintenance reserve, perhaps.
If we consider furniture to be part of the house, and we want a house to look good, we need to budget for replacement of all furniture every 10 years (usually not cost-effective to reupholster). Online estimates of furniture cost are 10-50 percent of the house value. If we take the bottom end of this range for cheap-ish furniture and assume that the furniture costs 10 percent of the house value, that’s 1 percent of the house value every year as a furniture renovation budget.
Backyard pools here in Florida have a life expectancy of about 20 years (leaks can develop; tiles start to come apart). They cost about $25,000 to rehab every 20 years and the pump and heater can die sooner, so that’s probably $1,500 per year amortized.
You’ll want to paint inside and out every 5-10 years if you want the place to look sharp. That won’t be cheap!
People in nicer houses seem to do complete kitchen and bathroom renovations every 15-20 years. Those are $100,000+, so at least $7,000 per year if you want to avoid a period of shabbiness and people walking in saying “this kitchen could use a renovation”. (Of course, hardly any cooking is done in these dream kitchens, but somehow the cabinets and appliances still manage to fall apart over time!)
In order to remain competitive, hotel owners are required to do complete renovations periodically. Every room is rebuilt, refurnished, etc. Every wall is painted and every floor gets a new carpet, tile, or other flooring. If you want to live in a house that isn’t shabby, you need to do the same thing and I suspect that will cost more than 4% of the house value per year. But how much more?
Maybe the people who can figure this out are the ones who do segregation studies for commercial real estate?
Or I wonder if we could take the cost of a complete rebuild of the house and multiply that by 4 percent. Building a mediocre house in South Florida will cost about $1 million (about $350/foot for 2,500′ plus another $100,000 for the pool). The maintenance budget for a 2,500′ house is thus $40,000 per year.
Here’s what I came up with…
| Cost | Expected life | Cost/year | |
| State Farm items | |||
| tile roof | $60,000 | 30 | $2,000 |
| hvac | $20,000 | 12 | $1,667 |
| water heater | $1,500 | 10 | $150 |
| windows | $60,000 | 20 | $3,000 |
| furniture | $100,000 | 10 | $10,000 |
| swimming pool rehab | $25,000 | 20 | $1,250 |
| pool filters/heaters | $5,000 | 10 | $500 |
| $150/ft renovation | $375,000 | 20 | $18,750 |
| Annual total | $37,317 |
Note that the $150/ft renovation is intended to include the kitchen, bathrooms, and all appliances. It would also include flooring and paint. The total comes out pretty close to $40,000/year and there is nothing in the budget for mid-cycle painting, unexpected repairs, or unknown unknowns.
In other words, if someone got a 2 percent mortgage a couple of years ago, his/her/zir/their annual maintenance budget could well be larger than the mortgage, an unexpected result for many.
The typical homeowner, of course, won’t do the renovation every 20 years, so he/she/ze/they will spend less and also live in an increasingly decrepit house (or move!).
For calculating inflation, the BLS uses the fictitious “owners’ equivalent rent” (OEI). Home maintenance costs rise with the price of labor, which in turns rises with the cost of health insurance and, thus, at a higher rate than overall CPI. I wonder if inflation is understated partly because it assumes that Americans will live in ever-shabbier houses. The shabbiness wouldn’t be compensated for in OEI because owners aren’t likely to notice how crummy their house has become compared to a new house (boiling frog syndrome, another false premise of Science).
In other words, our houses cost us way more than we think, either explicitly in money if we do keep them up or implicitly in shabbiness if we don’t, and that might lead to inflation being understated (since we would have to spend a lot more to maintain our lifestyle).
Assuming that the House was reasonably well built to begin with, the only mandatory maintenance you need to do is related to water intrusion: the roof, cladding, perimeters of windows and doors, and plumbing related.
Appliances need to be replaced every 7 years.
Everything else is cosmetic.
Barry: a reduction in “cosmetics” is a reduction in value of the overall housing experience (or the hotel experience, which is why hotels maintain the cosmetics). Of the stuff on the above list, I think there is plenty that is non-optional that doesn’t relate to water intrusion. If you don’t maintain the swimming pool, for example, the water will leak out and you won’t be able to swim. If you don’t replace the HVAC periodically, you won’t have heat and A/C (and if you’re in Florida without A/C you will destroy the house with mold).
If you don’t do the 20-year renovation either every 20 years or in pieces along the way, you’re going to have interior/exterior paint that is more than 20 years old. That will be ugly on the inside and the structure may not be that well protected on the outside.
As I noted in the original post, “In other words, our houses cost us way more than we think, either explicitly in money if we do keep them up or implicitly in shabbiness if we don’t…”. I think you’re saying that you’re happy to pay in shabbiness. But that’s still paying and is precisely what I’m talking about when I say that this is one way in which inflation is understated.
Only gootubers do that level of renovation & Greenspun is no gootuber. The government is mandated to increase housing prices at least 3% every year, so if everyone stopped renovating there would be an economic stimulus package.
Thought we’d get a blog post about Laphonza Butler, the latest win for the ruling class.
lion: Come to Palm Beach County and you’ll meet plenty of “non-tubers” doing the above level of renovation and much, much higher. The true standard for environmentalism and sustainability, of course, was set by a New Yorker: https://nypost.com/2022/10/26/william-lauder-demolished-his-110m-palm-beach-mansion/
Philip, you should buy second house close by and switch between two houses: live in one of them while the other is under maintenance and vice versa.
perplexed: That is a great idea and it seems to be a reasonably popular strategy down here. People hang onto their old house for an extra 6-12 months after buying a new-to-them house so that the heavy renovations can be accomplished on the 5-20-year-old structure. When the decorator finishes her work on the newly purchased place, they finally move (discarding most of the old furniture).
Before Ikea and Costco, furniture was considered a one-in-a-lifetime purchase for middle-class people.
Also: in Japan they rebuild houses when they feel they are worn out, which is probably good for the building trades in a country with negative population growth. I imagine it also has interesting implications for the mortgage and home insurance industries.
https://en.wikipedia.org/wiki/Housing_in_Japan#:~:text=An%20unusual%20feature%20of%20Japanese,buildings%20%E2%80%93%20see%20regulations%20for%20details.
In many of the coastal/historical parts of the U.S. you literally cannot tear down older buildings or substantially change them. (Not a problem in most of Florida, I’d wager)
I think the way that Japanese housing stock is considered disposable might have an important positive effect going forward: the cheapest, most durable HVAC system is insulation and tight construction. You get a comfortable home without paying much for energy, and you don’t even need solar panels unless you have a Tesla. So a society that is going to rip down and rebuild everything in the next few decades is well positioned for climate shifts.
Might be because Japan is the land of earthquakes. Over here, I live in a condominium (I suppose) owning a house somewhat more than 80 years old. The general requirements are to set up a maintenance plan (much like Phil’s examples above) and then save or borrow to implement the time table. Easier said than done.
https://www.youtube.com/watch?v=Nl_Qyk9DSUw
On the other hand, I just had my pool resurfaced for the cost of a new Corolla. It starts to leak and the tiles fall off, just as you say. I thought they could just patch it up but I talked to three different guys and they all said the existing surface was failing and needed to be redone. I’m glad I’ve found someone who understands my plight!
Just today, I started researching kitchen designers in the first step to remodeling the kitchen in my 66 y/o, 2000 sf, single-family FL home (last done, inexpensively, probably about 25 years ago). I hope to stay under $50K but I suspect that’s not possible. Retiring in two years, so I may not do anything, sell it at retirement and buy (much) newer.
I bought a 1960s house in Deutschland for a little under 300k, and have now spent in the past for years about 100k in renovations. 24k for the tile roof + insulation, 20k for new electric & ethernet wiring, 15k for painting and floors, inside and out, 10k for the kitchen, and 27k for 3 new bathrooms and new plumbing. My house is only 1700sqft (not including garage), which small by American standards. I did get 30k in subsidies from the government for the home purchase and renovation. I didn’t go for luxury standards (except for the fingerprint reader for the house door so the kids could get in on their own and to rescue ourselves if we forget the keys and lock ourselves out). I tried to buy the cheapest house in the best neighborhood.