Determining how much to budget for maintenance and repairs for your property is a difficult task. Unless you have a crystal ball, it’s almost impossible to know what the year will bring and how much it will cost you. Fortunately, there are some calculations you can make based on average homeowner costs, to help you make an informed decision for your investment.
Let’s explore the Square Foot Rule and the factors that can help you determine the right number to budget for maintenance and repairs for your property.
The Square Foot Rule
To calculate how much you should budget for property maintenance, a good rule of thumb is to allocate $1 for every square foot of the home. If you own a 1,500-square-foot property, budget $1,500 per year for maintenance and repairs.
The Square Foot Rule is preferable to other calculations, like the 1 Percent Rule. The 1 Percent Rule says that you should budget 1 percent of the home’s purchase price for annual maintenance and repairs. If your home costs $200,000, you should budget $2,000 per year.
The Square Foot Rule makes more sense to use as your base calculation because if you have more home to service, you’ll need more money in your budget. Conversely, the current real estate market, the seller and your negotiations impacted your final purchase price. If you bought the property at the peak of a bubble or managed a great discount, your maintenance budget shouldn’t be affected. The price of your home and the price of maintenance are generally independent, making the Square Foot Rule a better estimate.
One factor the Square Foot Rule doesn’t account for, however, is the cost of labor. Maintenance and repairs for a 1,500-square-foot property in Toronto will be different from those in Windsor. The price for contractors, labor and building materials may vary by area.
Factors impacting your maintenance and repair costs
The Square Foot Rule is just a starting point for calculating your annual budget amount. Here are other factors to consider to determine a more realistic number:
•Type: Single-family homes require more maintenance than condos or duplexes. If you own a single unit within a multi-family building, you’ll have fewer maintenance costs than a three-bedroom house, even if they’re the same square footage. Your home type may also influence what type of tenants you have: A revolving group of college kids will likely cause more damage than a family renting long-term.
•Weather: Homes battling freezing temperatures face threats to the plumbing, roof and HVAC system. High winds are also damaging to properties, and nearby trees or power lines will be a looming threat.
•Location: Similarly, a home’s location determines how the elements impact the home. If the home is located at the bottom of a hill or near water, it may be subject to flooding. Local pests can also cause costly damage.
•Age: A new house likely needs much less maintenance than an old house. A 20-to-30-year-old property may need a new roof, new HVAC system or other expensive repairs. Houses older than 50 year may have electrical, plumbing or other infrastructure issues that may not only be outdated, but also hazardous.
•Condition: Old houses may need fewer repairs than a newer house depending on how well the previous owners maintained the property. Cheap maintenance and repairs or unaddressed issues can cause even more problems. If a home is older, poor maintenance can add a lot to maintenance costs.
If your property is subject to any of these factors, adjust your initial Square Foot Rule estimate. For each factor that adversely impacts your home, add 10 percent to your budget.
For example: If you have an older home in an area that regularly sees freezing temperatures, increase your estimate by 20 percent. Using the Square Foot Rule for your 1,500-square-foot-home: $1,500 x 1.2 = $1,800 annually/$150 monthly.
Finding your number
The Square Foot Rule is just an estimate to help you get an idea for your budget; there is no miracle formula that will fit every property every year. If the 1 Percent Rule seems more logical for your property, use that. Or, calculate with both formulas and take the average. The maintenance and repair costs should average to meet your budget over time, but some years will naturally have more repairs than others.
Regardless of which method you use, it’s important to always have money set aside for property maintenance and repairs. Your property is your investment, and proper maintenance will help you receive a greater return on investment in the long run.