Decrease Your Homeownership Costs
Some clients recently purchased their first home. Woo hoo! I asked a simple question, which led to this back-and-forth:
My question: “Is there anything you wish you knew beforehand?”
Their answer: “Everything is going to the house right now! Our free time, our money, and our conversations! It seems like Home Depot is taking all of our money and we don’t have money for fun things. No one told us that the to-do list is never-ending!”
They are now experiencing the steep learning curve of becoming homeowners. These clients purchased a fixer-upper, so the projects seem never-ending at the beginning. Even with the overwhelming nature of moving into a new home, there are plenty of opportunities to make your life easier — and save some money — as a homeowner.
In this article, we’ll give you a sneak preview of our upcoming personal finance module to become available to our clients next month.
In this module, clients discover their unique reasons for — and the associated perks behind — things like …
- buying a home,
- how mortgages work and when it makes sense to refinance,
- how to plan your relocation and sell your home,
- other ways to invest in real estate, plus
- when it makes sense not to own a home.
To access more personal finance modules like this one, please visit our Services page. These modules are included in your comprehensive services client experience.
Taxes
Annual property taxes: Real estate taxes differ by state and sometimes also by city. You’ll have options to either pay your property taxes through an escrow account (additional fees apply) or directly with the city. The escrow account method allows you to prepay your property taxes through your monthly mortgage payments instead of saving up for the tax obligation yourself. Overall, if you have the cash flow discipline to save for your property taxes, you should consider forgoing the escrow option.
Pro Tip: Remember, the assessor isn’t always right. In fact, large-scale assessment for real estate property taxes is a process that consistently produces errors and irregularities. In some cases, the mistakes are obvious and disputing or protesting your next valuation could result in a quick payoff if a set of eyes at the assessor’s office agrees with you. In other cases, if the assessor’s office disagrees, it could be worth hiring an appraiser or other real estate professional to challenge the assessed value at an equalization hearing.
Selling your property: Keep track of your cost basis in your home. This will help you when the day comes that you plan to sell. According to the Taxpayer Relief Act of 1997, a single person can exclude $250,000 of capital gains when selling a home if they lived in the home as their primary residence for two out of the last five years. This amount is doubled for people filing as married filing jointly to $500,000.
Your cost basis = your purchase price + other home acquisition fees + any other home appreciation projects you’ve completed (solar panels, finished basement, etc.). Your future self will thank you if you stay organized and keep track of these home improvement costs. Isn’t proactive tax planning glorious?
Risk Management Plan for Your Home
Once you’ve done the hard work and secured your new home, you’ll want to take the proper steps to protect your investment. Consider the following policy options.
Homeowner’s Insurance
A homeowners insurance policy covers a home and its owner’s possessions from perils like fire, smoke, lightning, windstorms, vandalism, and theft. Nearly all mortgage lenders require homeowners insurance. Most will even roll the cost into your monthly payment to fund an escrow account, which is set up to pay the premiums.
Umbrella Liability Insurance
An umbrella liability policy can help protect your assets if you’re liable for an accident that results in damages or bodily injuries. For example, if you are found responsible for a car accident in which someone was seriously injured, your home (especially a second or investment property) could be in jeopardy should the other party take legal action against you and you’re found responsible for more than the limits of your auto policy — and an umbrella policy could offer protection.
Disaster Insurance
If your home is in a flood zone, flood insurance can protect your investment should the unthinkable happen. Floods are not a covered peril included in standard homeowners insurance policies, and the same is true of some types of wind damage, like that resulting from tornadoes or hurricanes. Depending on the location of your home, you may also consider supplemental earthquake insurance.
Pro Tip: Even with insurance in place, don’t forget about having an emergency fund. A prudent guideline is to have three to six months of living expenses stashed away. When you add a second home to the mix, you’ll probably want to increase your emergency fund accordingly. Insurance policies are great safety nets, but they don’t always catch everything and generally won’t pay for regular maintenance. An emergency fund can help make up the financial difference should a claim fall through or major appliances fail.
Homeowners Associations (HOAs)
Unfortunately, there aren’t usual ways to lessen your HOA dues. Yet, you can best take advantage of your HOA similar to how you take advantage of your employee benefits. Why pay for something if you can get a discount somewhere else?
Become an active member in your HOA to then start hearing about multi-neighbor discounts. This can happen when multiple neighbors hire the same services.
For example, consider tree trimming services. A company prefers to make one trip to your neighborhood with their equipment versus shuttling it back and forth over multiple days. A tree trimming company can encourage HOAs to have neighbors coordinate their services so the tree trimming company can accomplish multiple projects in one day. By being in the loop with your HOA, you can discover if these types of programs and opportunities become available to you.
Maintenance, Repairs, and the Never-Ending To-Do List
The biggest learning curve typically happens when you begin to figure out the uniqueness of your home. You’ll be thrust into learning the new house’s features, appliances, neighborhood, landscaping, amenities, etc. Give yourself some grace as you learn about your new home. You’ll probably make some comical mistakes as you figure things out.
To lessen your costs, here are three strategies you can use when it comes to maintaining and improving your home.
1) Perform Regular Maintenance and Upgrades.
Some tasks are seasonal (for example, winterizing your sprinklers), while some are needed once the durability of your home item expires (for example, changing the filters to your HVAC system).
Addressing your home’s maintenance can save you hundreds if not thousands of dollars. You may consider cutting your electric bills with solar panels, installing smart thermostats, xeriscaping your yard, ensuring your insulation is working effectively, and even upgrading your toilets. After reviewing the EPA’s website about residential toilets (yes, I gladly did this …),
“By replacing old, inefficient toilets with WaterSense labeled models, the average family can reduce water used for toilets by 20 to 60 percent—that’s nearly 13,000 gallons of water savings for your home every year! They could also save more than $140 per year in water costs, and $2,900 over the lifetime of the toilets.”
Pro Tip: Some local utility companies may incentivize you to upgrade to smart thermostats, xeriscape your landscaping, or recycle running toilets. Check your local provider for details.
2) Do-It-Yourself (DIY) When You Can.
Instructional videos are available on the web to help you figure out how to blow out your sprinkler system, clean your garbage disposal, and install a ceiling fan. When you feel confident and have the gusto, give it a shot.
You can also enjoy what’s known as the IKEA Effect, which explains how people feel pride and overvalue home-built projects instead of buying a similar pre-built item.
3) Get Multiple Quotes from Contractors.
When you’re out of your league for DIY projects (natural gas, electricity, foundation, etc.), you may need to call in professional help. Maybe you don’t have the time or desire to DIY, you don’t have the tools for the project, or you need a pro for another reason. In these situations, get multiple quotes for repair and home improvement projects through referrals. You may also choose to use HomeAdvisor, Angi (formerly known as Angie’s List), or other portals.
Just like in your mortgage lending process, you’ll gain knowledge, gather information to help you negotiate, and can hopefully feel confident with whoever you hire to help you.
Pro Tip: Contractors can be tricky to deal with. Be firm, respectful, and persistent. You can try to include a line in your contract about money being shaved off your final payment for each day/week that the contractor goes over deadline before completing the project. Overall, I wish everyone luck when it comes to contractors!
This article is a free preview of our personal finance module. As our client, you can access the rest of this module, which includes:
▶︎ When Renting Makes Sense
▶︎ So You Want to Buy a Home
▶︎ Purchasing a Home
▶︎ 9 Steps to Refinance Your Mortgage
▶︎ Relocation and Selling Strategies
▶︎ Real Estate 2.0 and Tax Considerations
▶︎ A Simple Guide to Buying a Home
Not a client yet? See if our ensemble approach is right for you. Head to our Comprehensive Services page to learn more about what we do for our clients.
