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Creating a home maintenance fund

27 Aug 2014

When it comes to owning a home, it’s not just about making monthly home loan repayments.

If possible homeowners should aim to save at least 1 percent of the value of the home to cover the maintenance costs for a year.

This is according to Adrian Goslett, CEO of RE/MAX of Southern Africa, who says home maintenance is an intricate part of homeownership. “There are several benefits to owning a property, such as the potential of having an asset that increases in value over the long term. There are also the personal benefits of making all the decisions when it comes to what the home looks like. However, with the advantages comes the responsibility of maintaining the property to ensure that it reaches its full investment potential.

“Affording a property is not just about being able to meet the bond requirements, but also about being able to set aside some money for when the unexpected happens,” he says.

Goslett says while most major issues or damages caused by fire, flooding and natural disasters should be covered by home insurance, the general upkeep and maintenance of the property is not.

“Insurance policies do vary from company to company, however, while most will repair a roof if it has been damaged from a fire or other disaster, they won’t cover it if it is just old and in need of repair - this will be for the homeowner’s account. A new roof can cost a lot of money and could be a huge financial burden if the homeowner has not set aside money in some kind of a contingency fund.”

As a homeowner, it is essential to have an emergency fund to avoid incurring additional debt to pay for home maintenance and unforeseen repairs.

If possible homeowners should aim to save at least 1 percent of the value of the home to cover the maintenance costs for a year, he advises. "So on a home valued at around R1 million, this would translate to a minimum savings of approximately R10 000 per year to cover maintenance costs and any repairs needed. If the money is not used during the year, it should be kept and added to the next year’s savings to ensure that the homeowner is covered in the event of a major expense.”

While 1 percent of the home’s value should be the minimum, how much a homeowner can set aside will largely depend on their financial situation, taking into consideration their income, expenses and savings goals. Another consideration is the home’s condition and age, as older houses may require more maintenance than newer ones. Ideally homeowners need to have a balanced approach to their financial priorities, with thought given to saving to cover expenses in the event of job loss, paying down debt levels and retirement.

He says every situation is different, so it is important for homeowners to figure out what savings plan would work best for them. “It’s vital for owners to assess their circumstances and decide on an amount that is realistically manageable and sustainable - consistency is a key element to building a savings of any kind.”

With the living costs and utility expenses continuously increasing, homeowners may only be able to build up their project fund slowly. Goslett says if this is the situation, they should prioritise maintenance projects based on their necessity and push purely cosmetic projects back as far as possible.

“In certain cases, homeowners can break large projects into smaller segments so that they do not have to pay out large sums of money all at once and have more time to build up their fund. For example, if the windows need to be repaired or replaced, the owners can do so one room at a time instead of the entire house all at the same time.”

The best way to start a savings fund is by setting up an automatic transfer from the homeowners’ cheque account into their savings account, says Goslett. “According to research, consumers are more likely to forget about money that is automatically set aside and their savings fund will start to grow without them even thinking about it. Having a contingency plan in place will assist homeowners to maintain and improve upon their appreciating asset without being caught unprepared.”

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