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The Total Cost Of Home Ownership

London houses

Have you ever considered the total cost of owning a home? Most homeowners are not that interested however they should be as it can make a huge difference to how they enjoy their home and what they get for it when it comes time to sell up.

In this blog article, we consider a breakdown of the expenses of homeownership, plus we suggest how to add value to your home before listing it for sale.

Buying Strategy

Property investors and owner-occupier homebuyers have different buying strategies.

Owner Occupiers

Homebuyers choose a property they can live in, therefore they don’t consider it an ‘investment’ even though the home is likely to be their biggest asset. The property purchase is therefore emotional, i.e. it is not a business transaction; therefore homeowners are willing and most often pay more for their property, than its market value.

Property Investors

Property investors, on the other hand, treat all property purchases as a business transaction, so they pay less than ‘owner-occupiers’ and they will pull out of a sale if they can not get the property for less than market value. As a rule of thumb, property investors believe they make their money when they buy the property, not when they sell it.

For regular homeowners, this doesn’t make sense, as we know property increases in value over time, so why do property investors believe they make their money when they buy?

There is no guarantee a home will continue to go up in value, so if you buy well, i.e. below market value, you are locking in equity. For example, if a property’s market value is £200,000 and the purchaser buys it for £150,000, the locked-in equity is £50,000.

In our example, at any time during homeownership, the property has to be sold there is £50,000 of equity and anything achieved above it is a bonus for the seller.

The total cost of homeownership includes the purchase price, which is the largest share of total costs. Other costs incurred over the lifetime include additional purchase costs, mortgage interest, property maintenance, renovation. In soak.com’s blog post there is evidence of a recent survey on homeowner costs and some of the findings have been mentioned in this article.

Home Purchase Costs

Buying a home incurs more costs than the home purchase. There are the legal fees, cost of moving, stamp duty. For example, if you paid £231,100 for your home, over the lifetime of ownership, you’ll likely pay £2122 in stamp duty, £1500 in legal fees, and £2000 in moving fees.

Mortgage Interest

On a home purchased for £231,000, you’ll pay in the vicinity of £45,900 in mortgage interest. The actual total sum will depend on the length of the mortgage term and whether you’ve got a fixed or variable interest rate. For this overview, an average of 1.65% has been used in the calculation of interest payment costs.

Property Maintenance & Renovation

Maintenance

Bricks and mortar degrade over time. Irrespective of the materials used in a home, they all break down and eventually need replacement.

There will always be ongoing maintenance of materials and parts and labour. With labour costs, you can do a lot of home repairs i.e., use your D.I.Y. know-how as long as you stay away from structural, electrical and plumbing.

Here are a few improvement projects that fall into the maintenance area:

  • Freshly painted walls
  • Fixed roof
  • Replacing rotting wood
  • Removing mould
  • Maintained electric wiring
  • Maintained plumbing

Renovation

To enjoy your home, especially in areas like the Kitchen and Bathroom, you’ll need to renovate it. Plus when it comes time to sell up you’ll want to achieve maximum sales prices so here are the areas of a home to do up.

Outdoor Living

Making the most of your outdoor areas is an extension of your home and its where a lot of D.I.Y can happen successfully.

Look for the potential even in small spaces to create sitting areas and ideally suitable for a table and chairs. Use plants in pots and consider a wall-garden to transform small fenced areas into a garden oasis.

Kitchen

Did you know the kitchen is the most important room in the house? Even with technology grabbing our attention we still spend around 2 hours a day in the kitchen.

The kitchen needs neutral colours and it’s worthwhile spending the more in this room as most homebuyers will instantly respond either favourably or negatively to the entire house if they like or dislike the kitchen. When a remodel is done right, you can expect to recoup more than 60% of your investment.

Extra Bathroom

Adding an extra bathroom will pay off. According to estimates, you can recoup up to 120% of the investment of an extra bathroom. A well-known talk show host celebrity is renown for buying homes just to add a bathroom or two to sell them for profit. Have you guessed who it is? Do an online search.

Repurpose A Room

Building a new room can be expensive, however, doing so will reward you when it comes time to sell your home. There will also be space within your existing footprint that can be repurposed into a functional room. Think of your attic as a great place for a children’s playroom, or your garage as an extra guest bedroom. Basements need not be there for storing your unwanted items. Think of this space as a great opportunity to widen your home and increase its value.

Summary

Homeowners do not usually consider the total cost of homeownership before they purchase a property to live in. Living also gets in the way of taking care of the home over the years and often the home is sold without much thought. Think like a property investor when you buy and when you sell taking care of maintenance and doing some renovation prior to selling to increase its price and profit for its seller.

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