I am confident that past and present homeowners will back me when I say that you have no idea what it costs to own a house until you actually buy one. Maintenance costs come at you from all sides of your home, and then there are improvements and renovations to cover.
A new book can help new homeowners prepare for these costs and extract maximum value from their house when they sell. It’s called House Poor No More: 9 Steps That Grow the Value of Your Home and Net Worth, by veteran financial writer Romana King. Here’s a Q&A I did with Ms. King by e-mail recently.
Q: Growing the value of your home is a big theme of the book. Given the way prices are soaring across the country, how important is it for people staggering under the weight of their mortgages to spend money on improving a home?
A: My knee-jerk response to this question is that people need to re-examine their budget if they are struggling under the weight of their mortgage, but we can save that discussion for another time. In general, my response boils down to three critical points:
1. If you’re struggling to pay your housing costs, go back to your budget and recalibrate. This is not to say you’re bad or you’ve done something wrong. It just means you need to adjust your spending/saving equilibrium.
2. Home maintenance is a priority; home renovations are not. The focus should be on establishing a systematic way of maintaining your home; the immediate benefit is a properly working property with a relatively small chance of unexpected repairs. The long-term benefit is that a properly maintained home allows you to plan for upgrades and renovations – major expenses that should fit with your family’s needs and your personal finance plan, not match what the neighbour is doing.
3. If you do choose to renovate, focus on smart home improvements and/or stick to well-researched budget guidelines. Sadly, most people spend more time shopping for the perfect quartz countertop than researching the cost, timeline and potential value of a particular home renovation.
Q: So many people have been renovating since the pandemic began. What are the renos that add the most value to your home?
A: Based on historical averages, here are the best renos in 2022 for people about to list their home for sale:
- Increase curb appeal by adding a manufactured stone veneer – 95.6 per cent return on investment
- Replace the garage door – 94.5% ROI
- Replace siding with fiber-cement (a.k.a.: HardiBoard) – 77.6 per cent; with vinyl, 74.7 per cent
- Minor kitchen remodel (mid-range materials) – 77.6 per cent
For people planning to stay in their homes, rewarding renos include adding an attic bedroom, remodelling the basement, a family room addition and updating the windows.
Q: How important for resale value are climate-related home improvements? I’m thinking of efficient heating/cooling, insulation and so on.
A: Important! Not just to help the environment, but to help our budgets. These days, we need to be clear about the best possible use for each earned dollar; if that dollar is being flushed away because of a leaky toilet, or going up the chimney because of an inefficient furnace, then as a homeowner, I need to reconsider where I’m putting my housing upgrade dollars. But here’s the catch: Prospective buyers do not value these energy-efficient upgrades. Gone are the days when a buyer was impressed with new double-pane or even triple-pane windows. These days, prospective buyers just assume this update is complete and, if not, they’ll place less value on your home.
Q: You talk a lot about the cost of home maintenance, which is totally overlooked in all the propaganda about home ownership. I recall a rule of thumb saying that home maintenance costs an average annual 1 per cent of home value, but that seems to penalize people in expensive cities. What are your thoughts on a standardized estimate of home maintenance costs?
A: This question is one of the reasons I wrote this book. It’s much easier for people who hate math and money to set aside 1 per cent of their home’s value as their ballpark annual home maintenance costs. It takes a bit more work to calculate these costs using a per square foot calculation; however, I believe the per square foot method outlined in my book can help homeowners make decisions that maximize each dollar earned. Based on my research, homeowners can expect to pay between $0.71 and $3.94 per square foot in home maintenance each year. The lower end reflects smaller or newer/more recently updated homes or homeowners willing to do the bulk of the work themselves. The higher-end reflects larger or more dated homes or homeowners who would prefer to pay professionals to get the various jobs done.
Based on this range, owners living in a 2,000-square-foot home should budget between $1,420 and $7,880 each year in home maintenance costs.
ICYMI (In case you missed it) …
2022 ETF Buyer’s Guide: Best U.S. equity funds
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Rob’s personal finance reading list
Milking inflation
A look at how much the cost of milk a bunch of other groceries has jumped in the past 12 months. The bargain is booze.
Are you getting your share of rising GIC and savings rates?
Find out who the most aggressive banks are in raising interest rates these days on deposits.
Five Big RRSP Mistakes
The first item on this list is timely – not reinvesting the tax refund you get from a contribution to a registered retirement savings plan back into the RRSP.
Tax changes ahead?
A summary of tax-related promises made by the federal Liberals in the last election campaign and where they stand now, just ahead of the budget expected next month.
Today’s financial tool
The Canada Revenue Agency on how to tell if it’s a CRA agent contacting you and not a scammer.
The Money-Free Zone
For fans of The Godfather: An interactive quiz to mark the film’s 50th anniversary.
Tweet of the week
I asked on behalf of a reader about to be married how couples can best manage their finances. Many replies, many points of view. Here’s a link to an episode of the Stress Test personal finance podcast where I talk with my co-host, Globe personal finance editor Roma Luciw, about how couples handle money.
What I’ve been writing about
- Rising prices, interest rates and inflation signal nauseating conditions for homebuyers this spring
- Houses in the suburbs seemed more affordable – then gas prices soared and commuting resumed
- An AI-powered ETF is being shut down – what went wrong?
More Rob Carrick and money coverage
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Even more coverage from Rob Carrick:
- 🎧 Catch up on Stress Test: Are your parents giving you money? • Why it’s time to stop shaming the renting lifestyle • Is now the right time to buy a house? • Why are young Canadians leaving the cities they love? • Eating in: How COVID has shifted our food spending • Crisis-proof your finances? • Can you afford to live downtown? • The cost of kids
- ✔️ The housing file: The housing boom is ripping apart the financial fabric of Canada • Shut out: A well-qualified millennial home seeker throws up his hands after losing multiple bidding wars • Big city housing affordability is over – now what? • She sold her Toronto house to retire somewhere cheaper, but it didn’t work • How young adults and the whole country win with a tougher mortgage stress test for home buyers • Can’t afford your house? It’s likely not your fault
- 📈 Investing: Robo-advisers have grown out of the novelty stage. Here’s help in finding one right for you • The 2021 ETF Buyer’s Guide: Best Canadian equity funds • The 2021 Globe and Mail online brokerage ranking: Who’s best for investing … and answering the phone • Are these the stock market returns of a lifetime? • On the cusp of retirement and wondering about an ETF that pushes the limits on aggressiveness
- 💰 Your money: The five most important numbers for checking the health of your personal finances • Today’s freakishly low mortgage rates can’t last. What will pandemic home buyers do when they rise? • There’s a cost in money, isolation and family stress when seniors choose to remain in their own private homes • Taking CPP early can cost you $100,000 and limit your long term options • Fleeing the city for the suburbs? Watch out for higher property taxes, more cars and other costs
Are you reading this newsletter on the web or did someone forward the e-mail version to you? If so, you can sign up for Carrick on Money here.
