Property Ownership Costs | Inheritance Issues
Overview:
Maintaining your house can be costly if you buy a home with years of deferred maintenance. The problem is, most first-time home buyers don’t even think about how expensive a house will be to maintain before they purchase it. Lack of planning can mean an expensive bill just when you’re getting used to making your first mortgage payment.
While it’s relatively easy to calculate the cost of owning your home, it’s more difficult to identify how costly it will be to maintain your new home. That’s because maintenance costs vary, that is, they change from season to season and year to year. Your fixed costs are the principal and interest you’ll pay on your mortgage, your real estate taxes, and your homeowner’s insurance premium, known as PITI in the real estate industry.
Here’s a quick look at the basic expenses you’ll face when you own and maintain your home:
- Monthly mortgage payments of principal and interest, unless you have an interest-only loan or if you are on a bi-weekly mortgage program.
- Real estate taxes, paid annually or installments. You might also pay 1/12 of your tax bill each month along with your monthly mortgage payments if your taxes are held in escrow by your lender.
- Basic homeowner’s insurance, paid monthly with your mortgage (if you escrow your insurance and taxes) or paid annually.
- Homeowner’s (or condo, or co-op) association assessments.
- Utilities, including electricity, gas, cable, satellite, online, wireless, etc
- Trash and garbage collection, including recycling as required by your local municipality.
- Water and sewage, which may be billed separately or together.
- Ongoing maintenance, which could include window-washing, changing filters in your air conditioning units, cleaning your furnace, clearing your gutters, chimney sweeping, lawn and yard work, snow removal, blacktopping your driveway, resealing your windows, replacing caulk in the bathrooms, and changing light bulbs.
- Occasional maintenance, including repainting the interior and exterior of your home, replacing roof shingles or the entire roof as needed, replacing carpeting or flooring, replacing appliances and other items that break, tuck-pointing brick siding, and refinishing hardwood floors. This work doesn’t need to be done often, but will be costly when you do schedule the work.
How do you estimate how much it costs to maintain a home? The best thing to do is to start asking questions. Ask homeowners you know how much it costs them to maintain their property. How do they spend their maintenance dollars? You might also want to hire a professional home inspector to walk through the home after your offer is accepted.
A good home inspector will spend anywhere from 90 minutes to 4 hours, depending on the size and complexity of the home, to test everything from appliances, to electrical to water pressure, as well as look for mold, gas leaks and other maintenance issues. Be sure to take a notebook and pen with you so that you can jot down important information about the structural or mechanical systems in your home.
The inspector might be able to give you a rough figure on what routine maintenance will cost for that particular house, as well as an estimation of the useful life left in certain mechanical systems, like the furnace or hot water heater.
Before you close on your property, ask the owner to share a list of things he or she does to maintain the property on a regular basis. You might also ask if there are any preventive maintenance chores that can be done to make sure the house continues to work well.
Maintaining your property can cost as little as a few hundred dollars a year (for a home that’s in pristine physical condition) or thousands of dollars a year for a home that has years of deferred maintenance.
If you keep your home in great shape, you’ll pay a whole lot less to maintain it over the years. That’s because small, cheap problems have a way of growing into big, very expensive problems if not taken care of quickly.
Other property costs:
If you move to an area with higher living costs, you could end up with a lower standard of living -- even if you're making more money. On the other hand, a lower-cost location can help you live rich -- even if you aren't.
You need details to get a fairly accurate cost picture. The local newspaper is a great source; consider subscribing to your new town's newspaper for a month or two so you can check out grocery promotions, car ads, housing and employment classified ads, and news.
As you uncover cost-of-living information about the location you're considering, put those figures into a worksheet. A worksheet will help you figure the income you'll need in the new location, and it will help you answer the should-I-stay-or-should-I-go question. Here are some key price points to consider:
Study Housing from every angle
The cost of housing is one of the easiest yet most complex parts of the puzzle. Easy, because home-price comparisons abound on the Internet, in local newspapers and via real estate agents. Complex, because to find a comparable home, you must take in many factors besides the size of the lot or the number of bedrooms.
To find out what a home like yours would cost in a new location, quiz personal contacts and real estate agents (or both -- the more the better) about school districts, local parks and recreation, the crime rate, the proximity of stores, services, and places of worship and the age, education, and occupations of the neighbors. Ask about "hidden" home owning costs, such as recreation fees, trash collection, and community services.
Finally, check out the costs of homeowners insurance and the mortgage itself -- both of which tend to vary by region.
Try to get year-round sample bills for the kind of home you're considering. Some people pay plenty for cable TV, others rely on satellite dishes, and still others live so far out in the country that they pay long-distance fees to get on the Internet and have their own pumps and septic tanks instead of community water service. If you're moving to an area that gets dark early, has lots of swimming pools, or is very hot all summer, you can expect higher utility bills.
Pay attention to taxes
But don't dismiss a high-tax environment. Those taxes are paying for something, and if you're picking up better schools, convenient swimming pools, good libraries, trash collection, and more, the benefits may outweigh the cost. Saving on taxes could lead to higher expenses in other categories.
Insurance rates vary
There are huge regional differences in insurance rates, and for several reasons: Insurance companies and state regulations may be different, and some areas -- such as those prone to flooding or packed with expensive homes -- are more expensive to insure than others. The more populated your area, the higher your auto insurance costs will be.
Transportation costs
In the nation's big cities, the cost of train fares, parking, and bus tokens can pull hundreds of dollars out of your monthly budget. A small-town commute, on the other hand, can be a short walk or bike ride. Gasoline prices can vary widely from one place to the next. And if you're moving into an expensive part of the country, remember that everyone there charges what it takes to afford their own lives. So you can expect your new mechanic to charge more than your old one did for the same oil change.
Food costs
Comparing food costs from one area to another isn't a simple matter of pricing hamburger by the pound. The food you like best might not even be available, or at least not at a cost you can afford. If possible, take a shopping trip to your target area, or ask somebody who lives there to price your favorite foods for you.
Lifestyle differences can affect your food budget, too. If you're moving to an area with many high-priced restaurants and an active nightlife, you might be tempted to spend more on eating out and less on home cooking than you would in your current home.
The price of ‘free time’
How do you and your family spend your free time, and what will it cost to pursue those interests in a new location? Some communities have inexpensive youth sports leagues, swimming pools, skating rinks, and more, but in other areas those facilities are more limited. You might have to join an expensive club just to get tee time or a reliably-available tennis court.
Will a move take you far away from dear friends and family? If you envision keeping in touch to a great extent -- frequent phone calls, flying back to spend vacations with loved ones -- be sure to allow for the additional costs.
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