Home Ownership - A Peek at Periodic Costs

The hidden advantage with renting is that it lets one off the hook from attending to the odds and ends inevitable with owning. The landlord picks up the tab on all the government charges and in some instances goes the extra mile to include most utility payments as well as the ongoing maintenance. Many rental communities offer package deals that allows for cable TV and/or access to the community gym/swimming pool. For a homeowner, all of the aforementioned and much more are ones own responsibility. In the heels of handover, a number of these additional expenses arrive unannounced and many novice homeowners are caught unaware. The list below cites some common expenses homeowners have to cope with, in addition to the monthly mortgage payments:

1. Property Taxes:

Property taxes are familiar territory for most and the majority has an approximate idea of the cost involved per year as a percentage of the assessed value. While this quoted rate is a good starting point, a number of miscellaneous items are added to the annual property tax bill. Below is a sample of such items from a property tax bill from Alameda County during the 2009-10 year, assuming an assessed value of $500,000:


Taxing Agency/Special Assessments SourceTax RateTax Amount
Countywide Tax1%$5000.00
Debt Service: City of Alameda0.0245%$122.50
Debt Service: School Unified0.0479%$239.50
Debt Service: School Comm Coll0.0362%$181.00
Debt Service: Bay Area Rapid Transit0.0090%$45.00
Debt Service: East Bay Regional Park0.0100%$50.00
Debt Service: EBMUD Spec Dist 10.0064%$32.00
Subtotal (Taxes)1.1340%$5670.00
City Sewer ServiceNA$177.48
Mosquito AbatementNA$1.74
CSA Vector ControlNA$5.92
Healthcare DistrictNA$298.00
School Measure ANA$189.00
School Measure HNA$120.00
CSA Vector Control BNA$4.08
Mosquito Assess 2NA$2.50
AC Transit Measure BBNA$48.00
EBMUD WetweatherNA$61.00
East Bay Trail LLDNA$5.44
EBRP Park Safety/MNA$12.00
Urban RunoffNA$56.14
Subtotal (Assessments)NA$981.30
Homeowners Exemptin1.134% of $7000 MAX($79.38)
Total Amount DueNA$6571.92

Although the base property tax rate is 1% of the assessed value, additional taxes and assessments add up to another 0.31%. Another type of taxes imposed on a lot of suburban communities in California is Mello-roos. Mello-roos is taxation by which the local governments establish community facility districts (CFDs) as a means to fund community improvements – the law is outside the scope of Proposition 13. Some of these taxes are deductible (base property taxes) while others are not (some types of mello roos taxes and transfer taxes). Responsibilities also include state and city transfer taxes (due when buying/selling house) depending on the location – in our case, the state component was palatable at around 0.11% (California) while the city component was a bitter pill at around 1.2% (Alameda). Property tax relief is hard to come by although sometimes very minor concessions are possible.

2. Insurance:

Home insurance options abound and in most areas home insurance companies vie for your business thereby helping keep costs competitive. The standard Home Owners Insurance (HOI) mandatory for a mortgage include coverage for losses occurring to the property, its contents, loss of its use (living expenses), loss of other personal possessions, liability coverage for accidents at the home or at the hands of the homeowner within the policy territory. The important exclusions include flood damage, earthquake, effects of war, termite damage, etc. Additional policy for these items are available – the costs vary depending on the risk to the insurer and other factors – for instance, earth quake insurance expenses for our Alameda homes started at around 0.35% of the covered value but during our period of ownership, the costs escalated to around 1%, which to us was exorbitant. On the other hand, the mandatory HOI cost hovered around 0.15% during our entire period of ownership. One probable reason for this discrepancy could be that unlike the general HOI, there is not that many home insurance companies writing earth quake protection policies.

For appliances and other electrical equipments around the house, extended warranties are offered. These coverages ward-off surprise expenses when things stop working unexpectedly. The cost is steep at upwards of 5% of the purchase price annually.

Home warranties allow insuring major appliances such as refrigerator, dishwasher, and oven, along with plumbing, electrical, and heating systems. Sometimes, one-year warranty coverage is offered as part of the deal when purchasing an older home. The well-publicized exclusions include clothes washer and dryer and for these coverage is offered at an additional cost. The relatively hidden exclusions include faucets and fixtures. We were offered a 1-year warranty through American Home Shield for our 2nd home. The service was decent for that first year – a local plumber under contract from American Home Shield fixed a problem with the dishwasher. We extended coverage for two more years at a premium of around $400 per year. It was then we realized home warranties are not worth the hype:
  • The service is not prompt and the repair work can prolong for want of replacement parts.
  • Per the contract, replacement for appliances is an option only when it is beyond repair. In our experience, when appliances get really worn out it is not energy efficient to get them functional, weighted credit towards a new purchase is a necessary alternative.
  • Exclusions such as faucets, fixtures and the like are more prone to break.
  • The fee of around $60 per visit from a service provider is a deterrent from using them for small repairs.
3. Home Owner’s Association (HOA) fees:

These are fees collected by the association (usually a non-profit corporation) to maintain common turf and protect common interests. Almost a quarter of homes in the US are under a Home Owner’s Association. Depending on the nature and square foot of the common property and facilities serviced, these fees can vary from a few tens of dollars to hundreds of dollars per month. For our newly constructed first home in Alameda, there was no HOA per se, but based on the agreement the builder had with the city around $60 per month was collected as part of the regular property tax payments. The city in turn took over the maintenance of the streets within the community and a small park-area was converted into a public park. For our second home in Bay Farm Island in Alameda, there was an HOA of around $160 per month – the community is much larger (around 3000 homes) with private streets, beautiful landscaping, a large artificial meandering water-body etc.

4. Utilities & Miscellaneous Maintenance:

Water, Garbage, Electricity, Natural Gas, etc are all living expenses homeowners encounter periodically. Individually they easily average around $50 monthly with some kind of yearly inflation adjustment built-in.

Homeowners also have to be contend with assorted maintenance expenses such as front and backyard upkeep, house cleaning, and various fixes, which could be outsourced to a handyman. On the average, it is prudent to earmark around $1K per year for an older house under 2000 square feet.

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Last Updated: 03/2012. 


1 comment :

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