Did you know your house can be either an asset or a liability?
Most people think of their house as an asset, something they will be able to sell at a higher price at some point in the future.
And, for many people, this is exactly what happens.
But, if you do not take care of your house, it can become a liability. To the point where it may cost you thousands of dollars to demolish it. Or it could be something far less extreme, but still expensive.
Let’s start at the beginning.
You have purchased your house. You are excited. You FINALLY have a place of your own.
Sure, it comes with 30 years of payments, all that interest, the taxes, the insurance, perhaps HOA fees, but in exchange you can do almost anything you want with it. No evil landlord to tell you no and no rent increases. And, when it is paid off you will have that much more money to spend on other fun things!
There are several reasons why your house could become a liability.
1. The area could become undesirable.
This is outside your control and often due to perceived or real safety concerns- violence, drugs, bad reputation, unkempt neighboring houses…
You could unite with your neighbors to clean up neglected houses and yards, create a neighborhood watch group, launch a campaign to change the way your neighborhood is viewed, and partner with local officials to obtain grant funding. Difficult? Yes. Possible? Yes. Do most people do any of this? No.
2. You underestimated how much it would cost to maintain your home.
Let’s face it- owning a home is expensive. Most people only think of the closing costs when preparing for home ownership. In reality, you will also need to purchase a lot of tools and equipment- or be prepared to pay others- that you did not have to think about while renting.
You will also have to learn a whole new set of DIY skills. You will probably spend a lot of time on youtube watching how-to videos.
The IRS considers the useful life of a house to be 27.5 years. To figure out how much you should be budgeting annually for maintenance and repairs, take the price you paid for your house (minus the value of the land) and divide it by 27.5 years. That is the amount you want to plan to save annually for maintenance and repairs, especially those big ticket, capital improvements (like a roof, furnace, siding, windows, etc). A $137,500 house would be $5,000 per year ($137,500 / 27.5 = $5,000). You can either add those capital improvements to the home’s value or use the inflation rate to increase that amount over time. Keep this money in its own account because you will not be using it all every year. You need to save up for these big purchases.
3. You do not take care of things in a timely manner.
Whether you do not have the money for those maintenance and repair expenses or you are “too busy” to actually fix them, putting little things off can create big problems for the future.
While it may not seem like a big deal to let something go for a little while, left unfixed that little thing could become a big thing that you now need a professional for or is so expensive you will be really hard pressed to pay for.
Over time, things wear out, break, or just look dated. Be on the lookout for the small signs that something needs attention and then take care of it quickly. A $5 replacement wax ring or gasket could become a whole new floor if it is left to leak for months. A toilet flapper that no longer seals correctly, left unreplaced, could turn into hundreds of dollars worth of wasted water.
Part of my 8-module program includes how to optimize your assets so your money can work for you. It also includes plenty of 1:1 and group support and never ends so you can learn on your schedule. This program was made for busy women of all levels so you can start wherever you are and dive as deep as you want to go, without spending a lot of time. If you want to learn if it is a good fit for you, please email me to discuss.