3 overlooked costs of homeownership

An envelope being pulled back to reveal the word "cost"

A home is considered a good long-term investment. It’s not hard to see why. Homeownership offers many benefits – forced savings, tax credits and a source of income, to name a few. But owning a home comes with a lot of costs – many of which homeowners tend to overlook or downplay. Here are three commonly overlooked costs of homeownership.

Closing costs

If you’re a fan of HGTV, you know the shows like to focus on the more glamorous side of real estate – mainly house flipping and renovations. Rarely do they talk about something all new homebuyers should budget for – closing costs.

Closing costs are often referred to as the hidden cost of real estate. They’re the costs you’ll have to pay for the privilege of calling yourself a homeowner. Common closing costs include land transfer tax (you’ll pay two if you’re buying in Toronto), real estate lawyer fees and home inspection fees.

Closing costs are anything but a drop in the bucked. You can spend anywhere between 1.5 percent and four percent of a home’s purchase price on them. That means on a $500,000 home, you could spend up to $20,000. Luckily if you’re a first-time homebuyer, you may be eligible for rebates on some of the closing costs, so be sure to hire a good real estate lawyer.

Repairs and maintenance

Many homeowners like to boast about how much their property has gone up in value over the years, but many forget to include all the money they’ve shelled out in repairs and maintenance. Your home needs some TLC if you hope for it to stay in good shape for the years to come.

Homeowners can face a laundry list of costly repairs, including replacing the roof, upgrading the windows, repairing the furnace...the list goes on. A good rule of thumb is to budget three to five percent of your property’s value towards repairs and maintenance each year. So if you own a $500,000 home, that’s up to $25,000 you’d spend a year. Rather than going into debt, plan ahead. If you know your roof or furnace is on its last legs, start saving for it ahead of time.

Start putting money away in an emergency fund, so the money will be there waiting for you when you need it.

Opportunity cost

Opportunity cost is a big one that many homeowners overlook. If you dust off your economics textbook from university, you’ll recall that opportunity cost is the cost of giving up the next best alternative. While a home is generally considered a good long-term investment, it has several opportunity costs.

If you overspend on a home, you could find yourself house rich, cash poor, with little money to save, let alone have fun with. This means you may have to sacrifice your lifestyle just to pay the bills. Not a fun way to live.

Another opportunity cost is the money that’s tied up in the house. Although home prices generally go up in value, there’s no guarantee. Homeowners in Alberta who have been hit hard by the shock of low oil prices have seen their home values fall or flat line in recent years. In situations like this, you’d probably be better renting and investing your money instead.

Time is a third opportunity cost. With homeownership comes great responsibility. If you own a house, you’ll need to maintain the grounds – mow the lawn, trim the hedges and shovel the snow. Are you ready to sacrifice some of your free time to do those chores?

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Topics: Home

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