There is much more to homeownership than paying a monthly bond repayment, says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, who points out that maintaining the property, is an intricate element of being a homeowner.
“Becoming a homeowner has a number of advantages such as the potential of owning an asset that will increase in value over the long term. Other benefits include being able to make changes to the home and decide what it looks like without having to consult with somebody else. However, with the advantages comes the responsibility of maintaining the property to ensure that it reaches its full investment potential,” says Goslett. “Affording a property is not just about meeting the monthly bond requirements, but also being in a financial position to be able to put some money away for when the unexpected happens.”
He adds that while the majority of major issues and damages that could occur from a fire, flooding, natural disasters or the like, are covered by home insurance, the general up keep and maintenance of the property is not. “Policies will differ from one insurance company to the next in terms of what damage or disaster they will cover and what they won’t. However, homeowners can be assured that insurance policies won’t cover general home maintenance or damage that is a result of neglect or poor maintenance. The upkeep of the property will be for the homeowner’s own account. For example, a roof that has been damaged by a fire will generally be covered by insurance, whereas an old roof in need of repair won’t. Replacing or repairing a roof could be a huge financial burden if the homeowner has not prepared and set aside money in some kind of a contingency fund,” says Goslett.
According to Goslett it is vital for homeowners to have an emergency fund to avoid incurring additional debt to pay for home maintenance and unforeseen costly repairs. “Ideally homeowners should aim to set aside at least 1% of the value of their home annually to cover maintenance, bearing in mind the value of the property will increase. This translates to an annual savings of around R10 000 per R1 million of the home’s value. In the instance where the money has not been 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,” advises Goslett.
Although 1% of the home’s value should be the minimum, how much a homeowner can set aside will largely demand on their financial situation, taking into account their income, expenses and savings goal. “Additional factors to consider include the home’s condition and age, as newly built homes will initially require very little maintenance compared to older properties. It is best for homeowners to have a balanced approach to their financial priorities, with consideration given to reducing debt levels, saving to cover expenses in the event of job loss and retirement,” says Goslett.
He adds that each circumstance will be unique, so homeowners will need to work out what kind of savings plan will work in their situation. It is a matter of introspectively assessing their financial position and deciding what amount they can realistically set aside consistently – sustainability is a vital aspect to building savings.
With factors such as increased food prices, interest rate hikes and inflated utility tariff fees placed financial pressure on households; certain homeowners may only be able to build up their project fund slowly. If this is the case, Goslett says that homeowners should prioritise maintenance projects based on their necessity and push purely cosmetic tasks down the list.
“Although not always possible, in certain instances homeowners could divide large project into more manageable portions so that they won’t have to pay large sums of money all at once and have additional time to build up savings. If need be, rather focus on one room at a time than the entire house all at once,” he adds.
The ideal way to start a savings fund is by setting up an automatic transfer from the homeowner’s cheque account into their savings account. “Research reveals that consumers are more likely to forget about money that is automatically set aside and their savings fund can start to grow without them even thinking about it. A contingency fund will assist homeowners to maintain and improve their home, never having to worry about being caught unprepared,” Goslett concludes.