Last week, I cited an article in the Wall Street Journal outlining the true cost of owning a home over 30 years, which includes much more than just the mortgage. The main issue within the article is a warning to those entering retirement counting on not much more in the way of savings other than the equity in their house. It also outlines how the home you live in cannot be considered the great investment many people tout it to be. Remember, we’re not talking about income-generating rental properties, this is the house you live in, the house you must maintain.
The author of the article, David Crook, drew a lot of commentary about his figure for projected “major repairs and improvements.” His expectation for this category is $300,000, and many seem to feel this number is too high for repairs and upgrades over 30 years. Without knowledge of his methodology, I assumed that this included interest costs on the typical home equity loan that the average owner of today’s $300,000 house would take to finance these improvements. That’s not the case.
Since there was such a vocal dispute over the number, I emailed the author to see if he could provide some details. I’m happy that he has done so. The journalist drew upon his own experience owning homes in California, New York, and Connecticut, a 35-year history of working on fix-up houses, and data from RS Means to come up with the numbers. I’m satisfied with his details, which I’ll summarize here.
The important point is that the figures assume the $290,000 house is purchased today with a 20% down payment and owned for the next 30 years. The costs draw upon the average number and types of improvements one might expect to be made on a house over the next 30 years, with future costs adjusted for inflation. Here are some of the repairs and improvements the typical house will see.
* Two mid-level roof replacements (repair).
* Three exterior paint jobs (repair).
* Two HVAC / furnace systems (repair).
* New kitchen (improvement).
* New bath (improvement).
* Master suite or family room addition (improvement).
* Modest lawn/patio upgrade (improvement).
The repairs are almost guaranteed to be necessary over the course of owning a house over the next 30 years, while the improvements will see more deviation from house to house. Some will have fewer, while some will have much more. As I mentioned above, the costs Crook outlined for each of these expenses takes inflation into account. I won’t reprint all the details, but as an example, the two mid-level roof replacements are estimated at $20,000 for today’s improvement (about average) plus $40,000 twenty years from now.
Taking all of the figures into account, Crook expects the total paid for repairs and improvements, taking inflation into account, will range from $316,000 to $466,000. The details behind the numbers make the chart published in the Wall Street Journal look conservative.
Updated February 10, 2011 and originally published March 21, 2007.