Are You Spending Enough On Home Maintenance?
In some city suburbs, a price tag of a million dollars is common on homes owned by ordinary folk, who've never earned million-dollar incomes.
Mark Trafford, founder of home maintenance company Maintain to Profit, said: "If you owned a car worth $1 million, you wouldn't dream of not servicing it, would you"?
But many property owners were failing to lavish such care on their properties, he said.
Owning a property has never been cheap, but the costs of rates, insurance and maintenance have all risen faster than inflation, putting the pressure on homeowners.
One financial adviser believes that many people don't realise how much they need to save as a nest egg so they can to stay in their homes after retirement.
Financial planner Liz Koh said: "A good rule of thumb for retirement is to have a debt free home and investments of around half the value of your property".
The owner of a $1m home, would need a $500,000 nest egg to avoid risking their property slowly falling into disrepair around them.
There are essentially three ways to approach the maintenance of a property: Ignore it, pay for repairs as they become urgent, or plan for it.
Though ignoring maintenance sounds ridiculous, Trafford sees it even among some landlords, who minimise expenses, planning to eventually sell their property as a "do up", pocketing the capital gains despite their penny-pinching ownership.
"I've bought quite a few to do up from landlords," Trafford said.
These people fund only essential maintenance when they can no longer avoid it, but it's a strategy that carries risk.
"If you don't plan your maintenance, it may end up costing you more," Trafford said.
Paintwork lasts longer if kept clean. Treating a roof prolongs its life, sometimes as much as doubling it.
If a roof had to be replaced, it was better to do it before it leaked because leaks can damage the interior of the house.
Trafford warned homeowners not to expect insurers to pick up the tab. Insurance was not there to cover "gradual damage".
He suspected the prices people were paying for homes in some places took no account of the costs of maintaining them, leaving little in the kitty for doing so.
Older asset-rich, cash-poor owners may simply not have the money to maintain their homes, or fear taking out a reverse equity mortgage to fund them.
PAY AS YOU GO
This strategy leaves homeowners exposed to sudden failures of things like roofs, and for having to replace and repaint more often.
As a strategy, this may be a natural fit for many homeowners who are not given to making plans, or who wear rose-tinted glasses when it comes to assessing the state of their homes.
Every few years BRANZ, the building research agency, publishes a condition of housing survey. The last one showed 70 per cent of owners believed their homes were in a good, or excellent condition, while BRANZ experts thought only 42 per cent of homes were.
Without expert help, homeowners' focus was on cosmetic maintenance, BRANZ found.
Kim Sinclair from property management giant Crockers, said landlords' attitudes to maintenance planning varied both by the kind of homes they own, but also to their characters.
Expected future costs like repairs can be budgeted for, and many rules of thumb are offered as to how much money property owners should set aside for maintenance.
These include the 1 per cent of the value of the home, the 3 per cent of the value, 15 per cent of the rental income (or the equivalent, if it were rented).
Trafford is not impressed by rules of thumb.
Maintain to Profit exists to do maintenance plans for homes, including for properties managed for Crockers, and to do the maintaining.
Each plan was specific to a property. A simple brick and tile is likely to cost less to maintain than a weatherboard villa, Trafford said.
Price rises and falls, and changes in rents, can make a nonsense of rules of thumb.
If your house went up in value by $200,000 in the past four years, did that mean you need to set aside an extra $2000 to $6000 a year?
It's unlikely given most of the value of a home, and especially recent price rises, is in the land.
Rules of thumb can also produce some intimidating numbers. Own a $1 million Auckland home, and those rules of thumb would suggest $10,000 to $30,000 in maintenance each year.
Andrew King, from the Property Investors Federation, said its members spent an average of $3756 a property on hardware supplies, flooring and trades people last year.
That was about 0.8 per cent of the national median house price at the end of the year.
For DIYers keen to have a proper house maintenance process, BRANZ offers free downloadable maintenance planners, and sells a 350-page guide to home maintenance for $30.
Some properties come with built-in long-term maintenance plans. These are for places in multi-unit buildings like apartment blocks, where the body corporate is responsible for keeping the plan up to date.
Nobody audits these, so it is up to each owner, or potential buyer, to determine whether the amount being set aside is enough.
THE 15 PER CENT "RULE OF THUMB"
Landlords sometimes talk about setting aside 15 per cent of the rent of a property to pay for maintenance. Homeowners who want to follow suit can check what their home would rent for on the Tenancy Services website.
A median three-bedroom house in the upmarket, and heavily education-focused, suburb of Epsom in Auckland would rent for about $745 a week. That would be $111.75 on the maintenance fund each week, or $5811 a year.
A median four bedroom in Kilbirnie, Wellington would rent for $600 a week, making for a 15 per cent set-aside for maintenance of $90 a week.
The owner of a lower quartile three-bedroom house in Flagstaff, Hamilton, would be looking at setting aside about $63 a week.
The question for homeowners with mortgages is whether to set that money aside in a separate account, or simply pay it off the mortgage, and borrow more to pay for larger repairs when needed.
Many banks offer flexible arrangements such as allowing borrowers to keep a revolving credit portion of their mortgage.
Some also have "offset" accounts. These pay no interest, but sums saved in them are subtracted from the balance owed on the saver's mortgage for calculating interest payments.
This article is by Rob Stock and is reprinted from stuff.co.nz - last updated 17 February 2016