A Tale Of Two Homes

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Some homes are well-cared for and maintained, while others are seemingly left to rot.  Depending on the owner, it is either the best of times or worst of times for the condition of the house.  My brother closed on a house last Friday that is a bona-fide fixer-upper.  It is a home that was left mostly empty for the last 10-15 years and requires a myriad of fixes.  At the same time, we live in a relatively new house that we built in 2009 and requires only modest maintenance, but we have been investing in the fixes that are needed every single year. 

As I was thinking of the tale of these two homes, I wondered how much does adequate maintenance cost on a home, and what is one’s expected return on investment?  After all, I always say that it is easy to buy things, but tough to maintain them.  Hopefully all of that effort and expense is worthwhile, right?

COST OF HOME MAINTENANCE

Based on information from home lenders that have published articles helping people think about the cost of purchasing a home, it seems that one should expect to spend somewhere in the range of 1%-3% of the value of a home on ongoing annual maintenance.  With the average price of a home in the US hovering at about $202K, that translates to $2K-$6K a year in maintenance.  Newer homes are likely at the lower end of the range and older homes – that might need new roofing, HVAC, or siding – would be at the high end of the range.

If one puts off maintenance for a decade or more, maintenance needs will certainly compound and could require $50-$75K in repairs.  After all, a simple leak in the siding, which could be mitigated in an hour with $5 worth of caulk, could escalate into a major moisture and mold issue costing tens of thousands of dollars.

RETURN ON INVESTMENT

Two professors from U-Conn and Syracuse teamed up on an analysis to look at the value of ongoing home maintenance.  They pegged the value of regular maintenance at improving the value of one’s home by about 1% annually.  One of the study’s authors, Dr. John Harding, commented: “It’s like going to the gym.  You have to put in the effort to see the results. In that respect, people and houses are somewhat similar—the older (they are), the more work is needed.”

It is not hard to notice that based on these studies, a 1% increase in value is at the low end of the 1%-3% range of annual maintenance costs.  That is, at best, investments in maintenance break-even, at worst they return only $0.33 for every dollar invested.  Harding said, “Simply put, maintenance costs money, so it’s probably best to say that the net effect of regular maintenance is to slow the rate of depreciation.”

One limitation to the study is that it cites the value of only “basic maintenance” to the price of the home.  Surely, “major maintenance” or “home improvements” must yield a higher return, right?  After all, anyone who watches the home flipping shows on cable TV sees that fixing things up makes a huge profit for the home flipper.  I’m no expert in home flipping, but I do know folks that have done it successfully.  I’ll hope this is some indication that the study on basic home maintenance doesn’t capture all of the value in keeping your home up-to-date. 

OTHER RETURNS

Beyond the immediate financial impact of home maintenance, I think there are other benefits that are difficult to quantify:

First, when you keep your house in great condition and up-to-date, you get the benefit of living there and enjoying it.  That’s not a small thing, given that you and your family spend so much in your home (especially when you’ve early retired!)  Who wants to live in a run-down home when for not a lot of time and money you can keep it nice?  I’m sure a well-maintained property would rent for more than a run down property, but I haven’t seen that quantified anywhere.  

Second, I think that when one neighbor takes care of their home, other neighbors notice and it builds on itself.  This positive spin on ‘keeping up with the Jones’ encourages everyone to take good care of their home (or be frowned upon by the neighbors).  If everyone does a good job, that has to be good for property values in the neighborhood overall, yielding a financial gain for each homeowner. 

What are some of the other costs & returns of home maintenance that you’ve noticed?

Image Credit: Pixabay

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