In preparation for a potential recession, I have been planning and preparing for the worst but hoping for the best. I decided to take a look at all of our home ownership expenses and take a look to see if there were anywhere to cut any expenses. Here’s an overview of my expense matrix diagram.
The category that shocked me the most was insurance. Our home owners premium went up almost $1000 this year but at least we’re not paying $17,000 like some people in Florida are doing.
The total annual operating costs for running the home we live in is now $1,408.33/month. That basically includes the cost to have utilities, landscaping services, insurance, property taxes, and miscellaneous expenses. Note that this DOES NOT include the “capital expenditures” of roof repair, air conditioner replacement and water heater replacement. A home owner is also supposed to replace the carpeting/flooring in a home every 8 years and that’s not included either. Also note that our home has not mortgage, it’s been paid off!
Capital Costs
Unless you have a 100 year copper roof, it is likely that you will need to replace your roof every 15 to 20 years. We got our roof replaced in 2012 and we are halfway to needing a new roof in about 8 to 10 years. We have budgeted $10k but given the way labor and materials costs have been going it may end up being double that cost.
Like clockwork, our water heater also goes out in a 8 to 10 year life cycle and we’re getting close to 7 years on it so that will be another expense we’ll need to incur.
But the expense we dread the most is when our A/C goes out because that’s an expense that seems to come at the worst time during the summer when we need A/C the most. Our A/C unit is also approaching about 8 years old at this time and we hope it will last another 5 but only time will tell.
I also left out of the diagram another expense we got hit with this year and that was a fence replacement. The cost to replace the wooden fence in our backyard was $3000!
Can You Really Afford A House?
I have a friend who is an independent worker and for years she struggled to get a bank to give her a loan to buy a home. The bank always said her income was too variable and too high risk so she couldn’t get the loan. She told me the story and was angry that she could afford to pay her $1700/month rent and the home mortgage would be only $1300/month.
I had to explain to her that owning a home involves a whole lot more than paying the mortgage. You can get an idea from the diagram above what all the “hidden” expense will be and you will need to note that virtually ALL the costs go up over time.
Inflation
About 10 years ago the costs for almost all of the items above were half the cost than they are now and I can only imagine, 10 years from now they may be double. We were fortunate enough to buy a home and have stayed in it for 25 years now and while the home has appreciated in value, it did so much slower than other neighborhoods. I know some people that bought a home for $200k only to have the value skyrocket to $600k over a few years. Sounds like a great deal right? Well not exactly, they were forced to sell their home because they couldn’t afford the insurance and property taxes on it anymore. To add insult to injury they had to pay capital gains on the sale of the home.
We are approaching the point where we may have to incur capital tax on our home should it rise in value any more and we choose to sell it however it is likely we’ll just pass it on to our kids.