Why Are Houses Such Money Pits? We Ask the Experts!

"Why are houses such money pits?" It was an actual lament from a friend of mine recently. Although I don't think there is any one single person who can answer that question definitively, I think a panel of experts might be able to nail it down.

Timing being what it was, I just happened to be speaking with a panel of experts on the matter for Your Home, a series of homeowners' articles we're putting out this month on Walletpop.ca.

Realtors, contractors, landscapers and insurance adjusters all have a different view of the family home and the myriad of ways it can cost people money. To see if we might get answers (and perhaps some insight or help managing the inevitable costs), we asked each of them the very same question from my friend: Why are houses such money pits?

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Brian Sharwood, president, Home Stars Directory
[http://homestars.com/]
Why are houses such money pits? You often don't know what's behind the walls. You have an idea of what you want to do. Say you want new floors. You don't know what's below that floor or behind that wall and usually it's worse than what you imagined. You're not just removing the floor. You may realize that underneath there there's nothing supporting the floors, so now you need to go and put in new subfloors.

You often don't know the requirements either. I'll give you an example: I'm working on a project right now to clean the paint off the brick in front of my house so I found a guy from our site who does brick cleaning. He arrives and says well, if I'm going to spray thousands of pounds of water at the front of your house you need a new concrete platform or it's all going to drain into the basement. You also need to reseal all of your windows because the wood around the windows is all rotting away and (cleaning) will blast it away. We ended up getting new windows because we needed windows anyway. What starts out as a $3,000 project ends up being a $12,000 project.

Keep a budget. Have an idea of your budget and, even with a contractor, add 15 or 20 per cent onto what you think it's going to cost.

Reiner Hoyer, president, The Reno Coach
[http://www.the-reno-coach.com/]
I wouldn't say houses are money pits. If you renovate smart, you create value and you can maintain or at least or break even on your investment. It's not a money pit, but if your renovation is poorly planned, if you're making the wrong choices on the finishes or the type of renovations you do, then it is a money pit.

You create a money pit by making the wrong choices and decisions. Sometimes a house not worth renovating. A client may pay $200,000 more in a bidding war just to get the house. (Hoyer lives and works in Toronto.) Now his base cost price is way over the market value. Anything (amount) he's putting in he won't be able to recover.

I had a client who was going to do a $400,000 addition on a $2 million house that he paid $200,000 too much for. (The homeowner ended up being $200,000 short for the renovation he wanted to complete.)

It's not just the renovation work that creates the money pit. It's the homeowner's choices (especially) if he over bids. I had a house on my street sell for 25% over asking, which is insane. For these people to get ahead of the curve by improving the house is impossible. The fatal decision they made was getting backed into that bidding war to pay extra for the house.

John Oborne, Oborne Contracting
[http://www.obornecontracting.com]
Why are houses such money pits? Neglect. The reason houses cost so much when renovating is usually because the house has been neglected over the years. The homeowners generally do not or cannot afford to care for their homes.

When it comes down to renovating the homes, lingering issues usually expose themselves really, really quickly and they usually need addressing during the renovation process.

I always tell my friends, family, clients that they should be spending anywhere from $1,000 to $10,000 a year in home maintenance and property repair. If they don't, they will end up paying that in the future.

If you're buying a house a home inspector should be able to see the signs of a house being neglected. I certainly can. I know a lot of these home inspectors aren't that great, but they can walk into the house and say what you're going to have if you start doing some renovations. You can tell when a house has been neglected.

Richard Silver, realtor and president of the Toronto Real Estate Board
[http://www.torontorealestateboard.com/]
Houses are money pits, there's no doubt about it, but you can lessen that. You can fill in the pit a bit; you need to be very careful when you buy that you're not buying something that needs a major overhaul unless that is reflected in the price. Do a building inspection. Make sure you know what's involved.

A lot of people, myself included, actually enjoy doing the work but there's absolutely no doubt that there is maintenance involved with the ownership of a house. There's also maintenance if you buy a condominium, except you share in that responsibility. There's somebody there who manages it all for you.

I think the big mistake people make (when buying a condo) is thinking they don't have to worry about anything. The reality is there is still stuff that's going to be happening with the property.

A lot of it has to do with the land that we live in. We get very, very cold winters, very hot summers and lots of rain. Make sure when you buy something you know exactly what you're getting into. Have the proper building inspection.

Glen Oxford, National Property Claims Manager
Cooperator's General Insurance Company
Why are houses such money pits? Mine has cost me enough over the years. You do put money into it. Things do breakdown. There are a lot of mechanical devices in homes and they have a limited lifespan, whether that might be 20 years on a furnace or five or 10 years on a water heater; maybe 20 years on a roof. There are components that need to be replaced on a regular basis and sometimes that replacement is quite expensive.

So, there are elements that wear out and break down and you do have to put the money into them. That's just the reality of owning a home. I supposed in some ways it's no different than a vehicle, although most vehicles breakdown a little more often and generally some of the components of a vehicle are a little less expensive. Cars are easier to replace than a house too.

Barb Sukkau, Niagara-area realtor and president of the Ontario Real Estate Association
[http://www.orea.com/]
Why are houses such money pits? I guess it depends on the kind of house that you buy. We all have different levels of – what's the right word? Capability. I think the consumer needs to really get themselves educated about homeownership, maintenance costs and what it takes to maintain a home and properly keep it updated over time.

We always recommend that they have a qualified home inspector give them an opinion on the home. They give people an idea of what needs to be done and what you need to think about over the next three to five to seven years.

Things come up with a house. It's just like anything else. Like your automobile or whatever. It's running perfectly one day and then the next day something happens.

You need to be prepared for one-time rainy day things that are going to need to be repaired or updated. (She recommends homeowners keep a rainy day fund of $5,000 to $10,000 for home repairs.)

You are going to notice if you need a new roof soon. That's the sort of thing you can prepare for, but I think if the average homeowner had that sort of slush fund, that should be able to take care of emergencies that come up. If they have their eye on doing major renovations, that's the sort of thing they need to save for.

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Kate McCaffery is a freelance writer in Toronto, Ontario. Visit mccaffery.ca/kate2.0/ for more information.