What I propose is that monies be set aside every month to cover maintenance costs. Many experts suggest we set aside at least 1% of the home’s sale price annually to cover repairs. Some even suggest 2-3% as a more accurate number. This may seem like a lot and some years it will be but when your roof needs replacing the $10,000 bill will show you what I mean. You could start saving 1/12 of your annual repair budget every month and having it put in a special bank account or even deducted from your pay check. This sounds logical but what happens if you just bought a home and the boiler goes? The $167 you just set aside in month one will not cover the $7,000 plumbing bill for a new boiler. It might make sense to make a larger initial deposit (2-3% of sale price) into the account to get the ball rolling with subsequent monthly contributions to keep it growing.
Most of us buy cars using credit and we think of our cars as costing $349/month and not $20,000. This concept can be applied to home repairs. For example, the average roof will last about 25 years so if it costs $10,000 then that’s $400 a year for 25 years or $34/month. If you move in and your roof has 5 years left then that cost becomes $2000/year or $167/month. When you start adding up the boiler, roof, exterior painting, landscaping, windows, and all the annual cleanings it starts to add up quickly.
If you honestly planned to spend the rest of your life in this home then the 2-3% might be a reasonable number but if you only plan to spend a certain number of years then you might want to have a professional help you generate a spreadsheet for all the major maintenance items around your home with associated ballpark prices and how many years before each item will need to be done. That way you will know much to set aside each month. The truth is, if the house is in bad shape and you only plan to spend 3-5 years there you may need to come up with much more than 2-3% per year. Adding a little extra safety margin would be wise especially since things come up.
If you have emergencies you will have to come up with the money one way or another by borrowing from your IRA, credit card, cash or relatives. The bottom line is that it is less painful when you plan for it so setting aside a little each month is a great way to lessen the pain or sticker shock. You will either have to spend the money when you go to sell or take a loss because the home is in bad shape (or both). So I always look at it this way….why not spend the money while you are living there and enjoy the home’s function and beauty instead of spending it right before you sell it?