Episode 258 - Home Sweet Hole in Your Wallet: Unmasking the REAL Cost of Ownership
Owning a home is a dream for many, but the costs associated with it can often be surprising and overwhelming. While many focus on the obvious expenses such as the mortgage and property taxes, there are numerous hidden costs that can catch homeowners off guard. Understanding these costs and learning how to budget for them is crucial to maintaining financial stability.
The True Cost of Homeownership
Many new homeowners underestimate the variety of costs that come with homeownership. Beyond the mortgage and property taxes, there are expenses related to routine maintenance, unexpected repairs, insurance premiums, and utilities. These expenses can accumulate quickly, transforming the dream of homeownership into a financial burden if not properly managed.
Routine Maintenance and Unexpected Repairs
Routine maintenance and unexpected repairs are perhaps the most significant hidden costs. From replacing a furnace to fixing a leaking roof, these expenses can be substantial. Homeowners should be prepared to spend 1 to 3 percent of their home's value annually on maintenance. For instance, a home valued at $300,000 could require $3,000 to $9,000 per year just for upkeep.
Personal Experiences with Home Repairs
Amber Taylor shares her journey from renting to buying a home. Initially, Amber and her family faced the challenge of not having a down payment. However, after paying down their debt, they managed to save a 20 percent down payment and bought a home. They soon faced unexpected repairs, such as replacing a leaking roof, which added unforeseen costs to their budget. Brad Nelson also shares his experiences with buying a fixer-upper. The costs associated with updating and maintaining an older home can be overwhelming. From replacing water heaters to addressing foundational issues, the expenses can add up, often exceeding initial estimates, especially with inflation driving prices higher.
Managing the Costs: Tips and Advice
- Budgeting for Maintenance: New homeowners should budget 1 to 3 percent of their home's value annually for maintenance. It’s essential to have a financial buffer for these unexpected expenses.
- Home Inspection: Always get a home inspection before purchasing. This will help identify potential problems and give you an idea of future expenses.
- Saving for Emergencies: Given that many homeowners cannot cover unexpected expenses without going into debt, it’s critical to have an emergency fund specifically for home repairs. This can prevent financial stress and ensure that your home remains a sanctuary rather than a burden.
Considering the True Cost of Bigger Homes
Moving to a bigger home might seem appealing, but it comes with higher costs. Bigger homes mean higher utility bills and more space to maintain, which includes everything from mowing the lawn to replacing larger heating systems. These additional costs can strain your budget further.
The Value of Professional Help vs. DIY
While some might argue for doing repairs themselves to save money, not everyone has the skills or time for it. Certain repairs, especially those involving gas lines or structural work, should always be handled by professionals. Remember, attempting to save on repair costs by doing it yourself might end up costing more if something goes wrong.
Hidden Costs Beyond Repairs
Other hidden costs include landscaping, pest control, and routine upkeep like replacing worn-out fixtures or maintaining gutters. These recurring costs can be surprising and add to the financial stress if not adequately planned for.
The Impact on Lifestyle
Homeownership doesn't just change your financial status; it can alter your lifestyle. The additional costs might force you to cut back on other expenses, such as dining out or vacations. Proper budgeting is essential to ensure you can continue to enjoy life while managing the responsibilities of homeownership.
Conclusion
Homeownership can be a rewarding investment, but it requires careful financial planning and budgeting. By understanding and preparing for the hidden costs, you can make informed decisions and maintain your home without undue financial stress. Whether you are a first-time buyer or an experienced homeowner, staying informed and proactive is key to enjoying your home and ensuring its value continues to grow. Owning a home should be a joy, not a source of stress. With proper planning and budgeting, you can navigate the hidden costs and reap the benefits of homeownership.
Resources Mentioned
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- The Totally Awesome Debt Freedom Planner
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Episode Transcript:
Brad:
Hey guys. So today we are uncovering the surprising costs that come along with owning a home. While many focus on just the mortgage and property taxes, the hidden expenses can catch you off guard. We're talking things from routine maintenance and unexpected repairs to insurance premiums and utilities. These costs can add up very quickly. Today, we're going to be diving into how to budget for these often overlooked expenses and share some tips to manage them effectively. Now, whether you're a new homeowner or a seasoned pro, understanding these hidden costs is crucial to maintaining financial stability and ensuring your home remains a sanctuary, not a source of stress. Stay tuned.
Speaker 2:
You're listening to the Debt-Free Dad podcast with Brad Nelson. Brad and his co-hosts experience the anxiety of living paycheck to paycheck before learning the fundamentals of financial success. They are now on a mission to empower regular people to pay off their debt for good and enjoy happier, less stressful lives. Keep listening for inspirational interviews, tips, tricks and practical advice to gain financial freedom.
Brad:
Hey guys, welcome to today's show. I am Brad Nelson, founder of Debt Free Dad. I paid about $45,000 in debt, have been debt free now for more than 11 years, outside of my mortgage. I've also been fortunate enough to help thousands of other people save and pay off tens of millions of dollars over the years with the work that we do here at Debt Free Dad.
Amber:
Hey, I'm Amber Taylor and I saved and paid off $54,000 in 20 months and I've been debt-free outside of my mortgage since May of 2018.
Ryan:
And my name is Ryan Nelson, and my wife and I paid off about $160,000 in debt over eight years while raising three kids.
Brad:
So, after listening to this show, you guys, if you want to take your finances a step further and you'd like to get better results with your money in as little as 30 to 60 days, we're going to be sharing some details about how you can do that later on in today's show. So, guys, today we are talking all about those unexpected home repairs and expenses. Now, I mean, all three of us own a home. In fact, amber you, one of your goals when you actually joined Roots and maybe you could share this was to buy a home, and you guys made that happen. Can you share a little bit about that?
Amber:
Yeah Well, when we were starting out, we were renting and we were just tired of renting and we never thought we could ever buy a home. It was like, yeah, this is impossible. We don't have the down payment, we don't have enough. It's just never going to happen. But when we started to tackle our finances and pay down our debt, it soon came to a realization that, oh my gosh, this is actually possible. And once we paid off our debt, we were able to put some serious money away into savings because we were no longer paying other people. So we were able to save a 20% down payment on a home, and that was four years ago.
Brad:
Yeah, that's incredible. Now unexpected repairs come up, I'm assuming, oh my gosh, the roof needed to.
Amber:
So, yeah, we came in knowing we needed to replace the furnace, but the roof we thought we had a few years on it and it started leaking. We were in the upstairs and the it was raining, raining, raining for days and I was like, oh, the roof is leaking, we had to cut it all out. Wait for some quotes. But, yeah, we were not expecting to have have the roof replaced that soon. So, um, that was a very big unexpected expense.
Brad:
Yeah, I can relate to some of those things. When we bought I bought my very first house as a fixer upper house. The house was built in like the 1920s and little silly old early 20s Brad thinks like, oh, you just get the mortgage right. Little do you know about how expensive it is to maintain, update, fix. It's crazy how expensive it can get.
Amber:
Yeah, yeah, my daughter was just asking us. Actually, she's like how much do you guys pay, like how much is your mortgage? We started rhyming off.
Brad:
You know well, this, this, this and oh, don't forget the taxes, oh, don't forget all the utilities. And she's just like, oh, I'll keep printing. We work with people over the years and helping them get out of debt. It isn't, at least in my experience. It is for some, maybe, but for a lot of people it isn't necessarily the mortgage, the insurance and the taxes that cause the majority of the stress on people's personal finances. It's it's the maintenance side of things, and I see a lot of especially new homeowners, just like I did, just like I said, making this mistake of not being prepared for some of those expenses. And they say, on average, you know you could probably expect to spend anywhere between and this is again on average, probably some years it might be more is 1% to 3% of the total value of the home, right? So I mean, in some cases you know you could be talking and you are talking thousands and thousands of dollars per year in just maintaining that house.
Brad:
And this is something that, again, when you go into your house for the first time, or even someone who's buying their second house, sometimes these things can be overlooked and you may not always know how expensive it's going to be to make some of those repairs, Even the house that I just sold. You know I lived there for three years. We had a um, a home inspection done on it, just like you know, hopefully everyone would. We'll talk a little bit about that today. But you know, they found, like, some of these things that were wrong with it and even I, even being a seasoned finance pro, like I underestimated some of the costs, especially as inflation, you know, kicked in. You know, some of those things were much higher than than I ever anticipated them to be yeah, we've been at this house now.
Ryan:
I mean this has been. We've had a few houses over the years, but we've been at this house for 10 years and you know we've over those 10 years and we've probably just on maintenance and general upkeep. And when you think of maintenance too, it's important to not think of like the big things, like the water heater going out, but, you know, just maintaining the grass, the landscaping, like all of those little things. I mean, if you look over 10 years, I mean I mean I'm probably safely guesstimating that we're somewhere in that 50 to $60,000 range over the last 10 years. Like we've had to replace our heat and air conditioning, we've had to replace a water heater. We've, you know, and if you're super handy and you can do some of these things because this is one of the big arguments, I get a lot of time well, you just figure out how to do yourself.
Ryan:
I'm like there's certain things that I'm not what you know, like messing with a gas line. I'm sorry, but I'm not sleeping at night knowing I did that. I know what my abilities are and that's outside of my abilities. I mean, this house was built in 2004, so it's a a 20-year-old house, but in the grand scheme of things, we didn't buy an 80-year-old farmhouse that needs this work. This is 20 years old. I mean you start looking at if you're buying something in that 15-year range a lot of times, especially if it's the original furnace, original, air conditioning, original. Those are things that you're going to have to plan to replace because those are all things that are going to end up going probably over that first five years of ownership potentially that you have it.
Brad:
Yeah, yeah it's, it's no joke. I remember I kind of felt the same way. We had to replace some liners One of them was for a hot water heater exhaust up our one chimney and then we had to replace another liner actual in our actual chimney. You know that burned a wood burning fireplace and I debated on doing it myself. I'm very much like you, ryan. I was like, if my house burns down, I don't think that that's a good plan. I don't think I'm going to want to try to save money on this one.
Amber:
Yeah, those are some hard decisions you got to make, though right, because sometimes you feel like you could just do it, and then other times, well, it's a little too much.
Brad:
But it isn't always the big stuff. It is a lot of the little stuff. You think about landscaping. You think about I just replaced some of those flexible gutter downspouts and those are $12 a piece and you get six of them. It's not always the big thing. It's like the death by a thousand cuts in a lot of cases when it comes to maintaining your home. For instance, landscaping you get a landscaping pot. They're like $40, landscaping, you know you get a landscaping pot. You know they're like 40, 50, 60, sometimes over a hundred dollars just for a fricking pot to put flowers in it.
Brad:
Right, it's crazy what some of the costs are on some of these things and I think it often gets overlooked about how costs or how quickly those costs can add up. Just some quick statistics here. It says roughly one in five 19% of homeowners found the cost of home improvement projects to be the most surprising element in the first six months of their ownership. According to a new report by home services site Angie. It says annual hidden cost of ownership averaged around $18,000 nationwide. That's a year $18,000 a year. According to a separate report by Bankratecom.
Brad:
And just here's another one. This is a pest control and I thought this was interesting because this one you don't think about. In fact we're paying for this right now because we've got like this ant situation going on the outside of the house. It says a national survey by home team pest defense says the third largest residential pest control company in the us found that 84 of American homeowners experienced a pest problem in the past 12 months. And pest services are not cheap, you know. Those add up very quickly, so it's like all of these little things that create this mountain of expenses.
Ryan:
Living in the South and we've had to have pest control. But that's, you know, that's a monthly charge. Plus we also have to have termite control down here, so that's a quarterly charge that they have to come out and change. Those you add in are kind of keeping the lawn up. I mean just in those two things right there, probably talking 1500, 1800 a year, just in those two things. Now I know people could totally fertilize themselves and do that. You probably save some money. I don't do it, but still, I mean you're still talking. Like if you want someone to do those things for you, that's easily a couple thousand dollars, right there, right.
Amber:
Well, yeah, and you got to also count your time, though, because if you're going to do it yourself, like, it takes a lot of time, and we're constantly like, oh my gosh, the grass needs to be cut, oh my gosh, this needs to be done. And now we got to find the time in our schedule because we have a busy schedule to go and do that. So, like you, you've got to count for your time when it comes to those maintenance things too. And when is it worth it to pay for somebody to do it? Either way, it's costing you money or time, right.
Brad:
Yeah, and I think that's the thing that I was just going to say, that, amber, you took the words right out of my mouth. It's not always just a cost, it's it's having the time to do the stuff and then you get behind and then that stuff just keeps piling up and piling up and piling up and you know, homeownership is great, it's a great investment, but if you're not maintaining that home, it's not going to obviously grow in value as a house. That would be maintained, right, I mean, it still still will appreciate to some degree, but not to the point where it could if you kept it up.
Amber:
Well, you see a problem, you might go oh well, I'll get to that later, and then later, because a bigger problem and a bigger problem.
Brad:
Well, and I think, the added stress on this, though, is that you know, a lot of people I mean, we've shared this statistic on this podcast is that you know, as of last fall, I think it was around 63% of people can't afford a $500 emergency expense without going into debt. Well, just about anything you're going to fix on your house is probably going to be over $500. And the reality is that is what's causing a lot more of the stress. It's not necessarily just the home mortgage, again, the interest and the taxes and all of that stuff. It's, it's those extra added expenses, and if you don't have a plan for those in your budget, that's where this can you know. You know, basically, like what we just said in the intro, it's like your home, which is supposed to be a blessing, and becomes like this nightmare, this financial stress nightmare.
Brad:
Um, and and the other thing is, guys and you guys can speak about this, cause I know I can is nothing's ever done right. It's always like you get one project done and it's like, okay, now we gotta start planning to do the next one. Like it's never. You never like reach a moment where everything's just done. I mean, unless, again, if you buy a brand new house, but still you still got a plan like okay, eight to ten years out. You know, we need to know like some of the stuff that's here, you're gonna have to start replacing some of those things.
Ryan:
Right. But even with a new house, we bought a brand new house when we moved, when we moved here for the first time, and you don't even realize, like you buy it and you're like, cause, the industry is focused on payment, right, principal interest, taxes, that's what they're focused on, so that's what a lot of people get wrapped around. And then you move in and you're like we don't have any blinds, we don't have any curtains, we don't have any of this. And suddenly you're like two, three $4,000 to go do all of that that you weren't really kind of thinking about.
Ryan:
Um, so, even even a new house, there's a lot of hidden expenses that people don't like just to pretend like we moved up in house when we came here and you don't realize all the maintenance and upkeep that goes into a bigger home as well. So it's like it sounds cool to have like a bigger house. And then all of a sudden you're like now I got a double the electric bill, a double the heating bill. It doubled the heating bill and you know all these other maintenance and things that are happening with a bigger home. That's why we ended up downsizing and getting out of that, because it was just we were house poor.
Ryan:
This episode isn't to scare you out of like buying a house. It's just making sure that, whatever house you're buying, make sure you're taking all these costs into consideration, because these are things that are going to. You know, don't go buy a house where you're maxing out your payment and then the furnace breaks and now you're like, well, we're putting out a credit card or a payment plan. You know, make sure you're allowing yourself that that flexibility.
Brad:
Yeah, well, I also don't think, and I mean there probably are some good mortgage lenders out there that and real estate agents, you know that are educating their buyers about these things, but not all of them, and sometimes you know they're not going to sit down and say, hey, this is the house that you could afford based on your income. You as the buyer, you as the individual, need to understand that just because they say you can get that much money, it doesn't mean you should get that much money Because, like we just said, $18,000, that comes out to what I think it was what. $1,500 a month is what that comes out to, and that's just the average maintenance upkeep in the United States. So, again, some years you'll be above that, some years you're going to be below that, but, figuring in, we're going to need at least 1% to 3% of this total purchase price every single month to put away for some of these unexpected expenses, or you're going to wind up in debt, paying high interest for this appreciating asset.
Brad:
The other thing, too, guys, is maybe you could talk about this too, and this is something that sometimes people don't think about. I know Amber you mentioned, you know, obviously, the time it takes to maintain. But you're also going to see your lifestyle change because of the cost of home ownership, right. So if you're now again, keep in mind I get that rent is high, as we're recording this, rent is high. You know costs are high. So you're you know you might be seeing some areas rent is just as expensive as a mortgage payment, right.
Brad:
But then if you add on all these maintenance fees and all that stuff, you know and you're used to a certain type of lifestyle maybe you go out with friends, maybe you go out to eat, maybe there's traveling, you do whatever you have to understand that your lifestyle is likely going to change and be affected because you're only going to have so much money, because now you have to upkeep your house as well.
Brad:
And then, lastly, if you guys are buying a house and this is obviously for a new homeowner and this is crazy right now, guys, this is not happening a lot. I just sold my house and there are buyers in the market right now who are overb and up and all the home repairs and you know what you're talking about. But for the average joe like us, like not getting a home inspection. So make sure, like, if you're gonna buy a home. If you're going to invest in a home, invest in getting that home inspection done, because they're gonna go through with fine-tooth comb and find all of of those things down to like you're missing an outlet cover and you know all of that kind of stuff, just so you can kind of see, this is what I'm getting into when I buy this house.
Amber:
Yeah, doesn't it like protect you legally too, like moving forward if you find something that you know was not disclosed to you, like that could help you later on too.
Brad:
That I don't know legally. I don't know how that would work Like cause. It would be disclosed if they put it on the home inspection report, Like they're saying. Like hey, Absolutely.
Amber:
But if you don't have the home inspection and it wasn't disclosed to you about something like you, have no leg to stand on.
Ryan:
Right, correct. I think too like that home inspection report too, I think is really important from a perspective of that's going to help you kind of figure out your budget potentially for the next five years into this home ownership, because a lot of times you know they're going to be able to look at this inspection report and say, okay, the furnace is x years old, the water heater is x years old. They're going to give you this information, so it's going to allow you to look at it and say, okay, the water heater is 10 years old. What's the average expectancy? Okay, maybe it's 15. Okay, that likelihood we might, you know. So that's going to help you.
Ryan:
Because I think a lot of times we get into houses or you get the inspection done and you're like, hey, they didn't find really much, like a couple of little things, no big deal. Well, that's cool. It doesn't mean that the house is perfect and there's nothing going to go wrong with it. And I think and I've I've done this in the past where you have that impression and then you get into the house and suddenly it's like, well, I mean the furnaces, we got to buy a new furnace, or we got to buy a new water heater or you know. Suddenly we sprung a leak somewhere and it's like, oh, the inspection, they should have told us that. It's like, well, they probably did some of that, but you got to really read it and use that to your advantage so you can start planning out your budget.
Brad:
Yeah, absolutely, and I think that's the key to all of this is to be successful in this. If you are someone who is looking to buy a home or move up in a home, a budget is going to be one of the most important tools to make sure that you're number one, buying a home you can afford, but number two, you can also afford the maintenance. And number three, not be house broke, just like Ryan said, Because I mean, you don't want to get to the point where you buy a house and all you can do is just sit in it because you're going to go crazy and you're going to be like why did we do this Right? So you want to have some sort of sense of a life outside of that house and being able to go out and do things too.
Ryan:
A house is a great investment and will pretty much always improve in value. But if you're really looking to maximize your potential, you've got to be able to keep that house up. So you can't buy a house and then just live in it for 20 years, never do a thing to it, and then sell it and think you're going to get top dollar for it. And I think that's the big thing is, if you let your house go and it gets to the point where it's just beyond almost repair, where there's just so much wrong with it, and you go to sell, you're going to have a really hard time or you're just not going to get that return on investment.
Ryan:
So I think the industry is so focused on I paid this and then 10 years later I sold it for this. Well, great. It's like me saying I bought my house for X and if I sold it now I'd get this. But I'm not telling you the 60 or 70 or $80,000 or $100,000 I put into the house. So I didn't really get what I'm saying I got I've already. So like that's the part a lot of people forget about is yes, there's an investment, yes, you will make money on a house if you maintain it, but sometimes you know the likelihood of you making this astronomical amount of money and not having to put any money into. It is pretty slim.
Brad:
Yeah, Well, and I think this also comes down to and I don't want to obviously take this argument too far in this particular episode.
Brad:
We have done an episode on this, but I think this is where this home maintenance and the repair stuff.
Brad:
This is where it becomes interesting in the argument of, well, I should just buy a house because rent is the same price, and it's like, well, wait a minute. But when you rent, you're not having to pay for all the maintenance costs of that property, so that might be something that you're completely missing. And when you're sitting down with some of those lenders and they're not telling you about it, it can be very misleading All of a sudden that you show up to that first day of owning that house and then the expenses start pouring in and fixing it and updating it and doing things that you want to do to live in it. All right, guys, if you want to pay off debt, save more money and take control of your finances and start seeing better results here in just the next 30 to 60 days, all you have to do is head over to debtfreedeadcom, click on the green button at the top of the page and we're going to show you how you can get started today.
Ryan:
Let's talk about death, baby. Let's talk about your money. Let's talk about all the good things, all the bad things that may be. Let's talk about death. Let's talk about death. Tune into Death, free Death.
Amber:
Tune into Death, free Death, and that means it's time for the celebrations of the show. We have some celebrations about some fun purchases that Roots members have made, and Hillary has a long weekend at the beach.
Brad:
There you go, hillary. Love that, cindy. We are throwing a graduation party for our high school senior today. It has all been paid for with cash and $100 less than what we budgeted for. That's an awesome win, great job.
Ryan:
Carla picked up some new shirts and some flip-flops for the summer. There you go.
Brad:
Carla. As always, guys, congratulations to all of you guys who are taking a stand for your financial life and are wanting better. Hey, we get that getting out of debt isn't easy, but with our help and with your consistency and discipline, we promise you guys, this will be some of the best work that you guys do in your entire lives. Thanks for joining us for today's show and we will see you guys on the next episode.
Speaker 2:
Thanks for listening to the Debt-Free Dad podcast. Connect with us on Facebook, tiktok, youtube and Instagram. Just search Debt-Free Dad. If you found value in today's episode, please leave us a rating and review. We so appreciate it. For resources, show notes and links mentioned in today's episode. Please leave us a rating and review. We so appreciate it. For resources, show notes and links mentioned in today's show visit debtfreedad.com. Catch you next week.
