I have heard a couple philosophies on the best ways to save money.
One school of thought is that you need to focus on the “big three” expenses — housing, transportation, and food. The proponents of this line of thinking say that if you get these right, the rest of your spending takes care of itself.
Another school of thought says watching “small spending” is just as important because you can eventually go broke by over-spending a dollar at a time. The best example of this is David Bach’s “latte factor” described in his book The Automatic Millionaire.
I’m a fan of watching it all, then spending on things that bring you joy (within reason) and cutting the rest to the bone. I call this moderate and selective frugality. It worked quite well for us during our accumulation years — allowing us to save a ton while also enjoying our lives along the way.
Of course now we’re actually trying to spend more, but that’s for another post. Ha!
Of course I do see value in focusing on your top expenses and making sure they are within acceptable limits. And since I’ve already done posts on how to save on buying a car as well as how to keep your food costs low, I thought I’d tackle housing.
After all, for many people, their home is their largest asset (unless you’re Robert Kiyosaki — LOL!)…
…but it also often happens to be their biggest single expense.
It’s not only the cost of the house itself, but all the associated costs that can really put a strain on a budget.
That’s why today we’ll review five housing-related costs you can reduce to save some big bucks.
Mortgage
The first area of savings is the most obvious: the house itself.
There’s no doubt that debt costs a fortune so you’ll want to have the least amount of mortgage debt for the shortest possible time. I know some may disagree with this and prefer instead to borrow and invest more, but I think even those people would agree that debt should be limited — no one should go out and borrow 95% of the purchase price of a home IMO.
The key to keeping housing debt low is relatively simple: buy a house you can afford.
You’ll get all sorts of advice and expert ratios on how much of your budget should be spent on a house, but the bottom line is that YOU need to decide what you want to spend. You need to select a reasonable price that fits within your budget and leaves some margin for error (because we all know financial emergencies will pop up.)
If you buy at an affordable price, you can then work on making extra mortgage payments. If done purposefully, you can pay your house off in 10 years or less, saving yourself tens of thousands in interest costs.
In addition, buying a reasonable house will limit a whole host of expenses — both housing-related and non-housing, “keeping up with the Joneses” related. The book Stop Acting Rich detailed the connection between an affordable home and a high net worth. One finding: a lower-priced home saves you thousands of dollars throughout the years.
Insurance
Congrats! You now have a huge asset!
Now you’ll need to pay to protect it. All sorts of bad things can happen to a home and you’ll want good insurance to cover it.
Insurance prices vary widely. You can pay at the high end or the low end, for the same coverage. Here are some tips for how to pay towards the low end:
- Have a great credit score (or at least above average). People with better credit scores pay substantially less for insurance. Here’s an example where one blogger saved 44% due to a great credit score.
- Shop around. The only way you can tell you have a good price is to know the prices from various companies. You’ll be surprised how the costs vary. We do this once every other year or so to keep rates under control.
- Combine coverages. We combine home, auto, and umbrella policies into one as most insurance companies will offer multi-policy discounts.
- Pay to save. Many companies will offer choices of payment plans. We take the cheapest option which is generally to pay annually. Paying by quarter or monthly usually is much higher.
And while it’s not a cost-savings tip per se, be sure to keep your coverage up to date. Disasters seem bound to occur the day after a policy lapses and you certainly don’t want to deal with a damaged home and no insurance.
Utilities
Most Americans live where it’s hot in the summer and cold in the winter. Keeping your house at a reasonable temperature can be a financial killer if done without a thought about costs.
Here are some tips to keep these expenses at bay:
- Go a little hotter and colder. Move the thermostat down in the winter and up in the summer. Just a couple degrees one way or the other can end up saving you a good amount. We opt for 67 degrees in the winter and 74 in the summer.
- Get a programmable thermostat. This takes remembering out of the equation. You can set the thermostat to less desirable temps when you’re out of the house (like weekdays) or when you’re in bed (we drop our winter temps to 62 degrees at night). Then you can program it to get the temps up to normal just before you get home or out of bed. In the meantime you save a bundle.
- Caulk is your friend. It’s expensive enough to heat and cool a house. When you try to heat and cool the outside, it can get really pricey. Caulk the holes in your house (especially around windows) to keep the temps you pay for inside your home. If you don’t know how to do this (or don’t want to) many painters will provide this service.
- Use curtains and ceiling fans. Curtains can keep the cold out in the winter and the heat out in the summer. When opened, they can also let heat in on sunny winter days. Ceiling fans can make rooms seem cooler in the summer and can be reversed in the winter to push the warm air down. Use both of these to save yourself some money.
- Water when it’s cool. Do not water your yard in the heat of the day or much of it will evaporate. It’s best to water in the early morning hours when it’s still cool. We set our sprinklers to go off at 6 am and to only run three days a week.
Taxes
Unfortunately, there’s not much you can do to save on real estate taxes — you just have to pay them.
But some municipalities allow you to make payments or postpone payments for a fee. Don’t do it. Find the most economical way to pay (which is usually in full as the bill is due) and pay that way to save on costs.
It’s a relatively small amount, but every bit adds up. Besides, do you really want to pay MORE in taxes?
Maintenance
Every homeowner knows that there’s always something that needs repaired around the homestead. Here are a few tips for reducing those costs:
- Take care of your stuff. You’ve heard that an ounce of prevention is worth a pound of cure and it’s true. By giving household items regular maintenance and cleaning you can make sure your appliances, lawn equipment, furnace and AC, plumbing systems, and everything else lasts longer. Just an extra year or two of performance can mean big money over a lifetime.
- Combine with neighbors. When we lived in Michigan our neighborhood got together and bid out a whole host of services: garbage collection, snow removal, lawn care, and the like. You’d be amazed at how low the prices can go when you’re asking for quotes for 50 homes instead of just one.
- Do basic maintenance yourself. With the advent of how-to videos on You Tube, even repair-challenged people can do basic repairs and maintenance and save themselves a bundle. I learned how to prep my sprinkler system for winter, saving me $50 a year in blow-out fees. We’ve also fixed a leaky toilet, updated a bedroom, and done some basic landscaping all by ourselves. It’s not rocket-science by any means, but each little thing we do is $50 to several hundred dollars we save by not having someone else do it.
That’s my list of ways we’ve saved on owning a home. Some offer big savings while others just a handful of dollars, but they all add up to quite a nice amount.
Do you have anything to add — perhaps a money saving tip I missed? If so, please leave it in the comments below!
David says
One tax related item you can do is protest your property valuation. I do this at least every other year and it has saved me a bundle in property taxes (I live in a high property tax state).
Ellie says
I was just going to leave the exact same comment! Especially when home prices in your immediate area are falling- it’s worth it to try to get your home reassessed. We also live in an extremely high tax area so we’ve probably saved several thousand dollars over 30 years.
Apex says
The only time I have found this successful is when the value of one of my properties was significantly out of line with those in the immediate surrounding area. This has been rare and still required me jumping through a lot of hoops to eventually get them to admit that yes, the property was incorrect but only because I came armed with tons of documentation from their own assessments that they could not argue with.
For the two people above who have succeeded at this has your property been improperly assessed when comparing to your neighbors? If not what strategy did you use to get it accepted at the county that your property value needed to be lowered?
ESI says
This is my experience too.
When the market crashed in 2009, I tried a year or two later to have my taxes lowered. My house’s value had dropped dramatically and I had proof of it (with comparable sales).
I should have saved several hundred dollars on my taxes. My final reduction: $12.
David says
It definitely depends on the property tax load in your state. My Texas property tax bill is over $11k/yr and I’ve been able to get a reduction of $500 or so on multiple occasions in the last 15 years. However I have a similarly valued house in Colorado and the bill is only $2500.
Apex says
That’s right. People think the assessed value should match market value. It does not. It need not. It will not.
Property taxes you pay today are usually based on assessments that happened about 2 years previous.
That is all to say the value the county puts on your house is always old and out of date and will not reflect current value. The only thing that matters is that it reflects a relative value that is accurate with respect to the relative value that is on your neighbors houses because they just add up all the value in the county, divide by the amount of money the county has budgeted and then assess each property on a percentage basis.
So if market value for your house is 300K but they have you assessed at 400K people think they are going to get a reduction.
But if you neighbors houses all have a typical market value of lets say 250K and they are assessed at 350K then your value is right in line with their value and no real reduction is going to be possible.
You need to show that your house is only marginally more valuable than your neighbors houses but yet valued considerably higher than your neighbors house or something along those lines.
This could be done by showing that your neighbors houses all dropped in value by 50K on county assessed records but yours only dropped by 10K. Then you make them justify that discrepancy. They will likely be unable to and that is how you get them to lower your value.
But if you want to argue that your property should be worth less than it currently is based on current market values they aren’t going to listen because that is not how houses are assessed.
The two times I succeeded were as a result of two different assessment mistakes.
One was new construction right before the crash. I argued that the original value they had put on that new construction was never correct. They said how do you know. I said because I can’t find anything in the area at that time that was assessed at those rates. They said well you are looking at the wrong comparables. I said I am looking at the comparables right across the street. They said well sometimes those aren’t the right comparables. I said ok, I have looked at a wide range but I don’t have the entire database you do, so I only need one thing for me to go away. You produce the list of comparables you used to originally assess these units. I told her I did not think they ever did any comparables but just took sales values which I told her I believed was due to mortgage fraud and those values were never correct. She told me she would get me the comparables.
I had to keep calling her back so it didn’t get ignored which I am sure it would have. Eventually after repeated calls, she admitted they didn’t have any comparables and they then dropped the values considerably. Almost in half. That’s how far off they were.
The other case was just this year when a property I had increased in value by 50%. That is just nuts. I pulled all the comparables in the area and found the largest increase was 22% and most increased 5-8%. I pulled comparables for the past 3 years to see if it was just behind on a big jump from previous years in other comparables. No such jump ever occurred.
When I called the assessors he said the unit was recently reassessed and they assessor felt it had been previously undervalued. I showed him my comparables and asked what was special about this unit. I showed him price per square foot comparables etc and how this property jumped and no other ones did and no changes were made to the property. He said he would review my data and get back to me. The property change was increased to about an 8% increase instead of a 50% increase based on the comparable data I provided.
They still fight you, but with comparables they have a hard time making the argument. Without proof that your value doesn’t match up to those of your neighbors, I don’t know how this would succeed.
That’s why I was curious what the situation was for these other people and how they got the reduction if their property was not out of line with their neighbors.
David says
In Texas assessed value is market value: “‘Tax Code Section 23.01 requires taxable property to be appraised at market value as of Jan. 1. ”
In fact, when a house is sold the appraised value is automatically reset to the sale price.
Apex says
It is true that there is no one universal rule for this, but I do not think what you state is that different. Minnesota uses September 30 instead of Jan 1st but the point is very similar.
So for data as of September 30th is used for an assessment of the value of the property. Its an assessed value so it is supposed to be market value, however they determine that. I can tell you right now that they do not have the man power to go through a detailed appraisal of every property in the county every year. It costs $500 to get that done when you buy a house so I assure you they are not going through that rigorous of a process.
Most likely there are periodic in depth reviews in certain areas each year and after that a general formula is applied to most houses for increases or decreases based on their assessment of how the market has been performing that year in that area, with special adjustments for known unique situations or alterations to specific properties which is probably rare.
A computer program is likely doing most of the work and spitting out numbers. But rest assured it is all “market based.” They just get to determine what market based means.
I read the tax code you stated above for Texas. I don’t see anything in there that looks any different than what I am describing here.
So the MN assessment is done by September 30th of 2020 and it will be using numbers for most of the year of 2020 all the way back to October 1st of 2019, so that assessment will use some kind of analysis of average growth rates in the past year in property values and be heavily affected by sales that happened anytime during the entire last year, so that number for September 30, 2020 is probably already based on sales that are on average 6 months old already.
Then by about March of 2021 that statement of value will be mailed out. It will be listed as a statement of assessed value for 2021, but recall it was done in September of 2020 using sales data that could go back as far as October 1st of 2019. So by the time I see that statement it is based on data that may already be 1.5 years old.
That 2021 value will be used to set my tax rates for 2022. So taxes I pay in October of 2022 will be based on valuation metrics that could be as old as October of 2019, but definitely no newer than September of 2020. So somewhere between 2 and 3 years old by the time I am paying the last property tax payment based on those values.
And that is all market based valuation. I never claimed it wasn’t market based. It’s just really old data and its their method of determining market value whatever that is.
I do not ascribe anything sinister here. The county frankly doesn’t care what the values are. Rates are not set based on value, they are set based on budget. If there were no new houses in the county in a given year and every single house double in value in that given year and the county budget stayed exactly the same then property taxes would stay exactly the same for every house. Increasing house values do not mean increasing taxes and decreasing house values do not mean decreasing taxes.
Now that is not to say that in recessionary times when values are likely to be decreasing the county might not tighten their belt and reduce taxes and vice versa in boom times but it is not because of the change in house values, it is because of the budget that the county, city, and school districts set that determines the county wide taxes. Your portion is not based on your value. It is based on your value relative to everyone else’s value in the county.
David says
I agree that there is no way they could do a thorough appraisal for every property and resort to some generalizations to determine value. However, I have protested my value about every two years for the last 15 and have almost always been able to find enough MLS comps to get a meaningful reduction. Maybe my area is more heterogeneous in terms of values.
CB says
We live in Texas also and property taxes continue to go up over the years as surrounding property values increase when sold. Like David above, I protest every 2 to 3 years which means a visit to the tax office with documentation and many times a reduction in property value and reduction in taxes. Since Texas doesn’t have state income tax, states secure quite a bit of money from property taxes. if you don’t ask for reduction, it continue to creep up over time.
Apex says
Interesting. What percentage reduction would you say you typically get? Would you say they try to take it back after a couple years and that is why you keep being successful every couple years? If not, every time you get a reduction your value would fall further behind all of your neighbors values. It’s hard to believe they would let such a deficit continue to compound.
Philip says
I was able to get my property reassessed for a lower amount twice but not sure it’s worth it. For whatever reason, the computer algorithm the county uses to assess my home likes to “pick on” my home and assesses it higher than my neighbors. And our county reassess every year with no increase cap so I’ve seen successive 8% annual increases in my assessments whereas my neighbors may or may not get those same increases. When contesting my valuation, the county says I must show how actual sales of comparable properties are lower than my assessed values. And with most counties nationwide, the tax assessed values are lower than actual sales. I protested in-person to the assessment commitee that this was unfair since even though I’m only paying my “fair share”, most of my neighbors got a “discount” since their assessed values are lower than what they could get if they sold their house. I also argue that my house has old siding, less renovations, etc. so their valuations are high because the comparable houses sold were more renovated. I guess the guys/gal had sympathy and lowered my assessment around 5%. So my fleeting $200-$300/yr. savings got eroded due to the annual reassessments that slowly brings my home back up to the inflated relative assessment value.
BSue says
When selecting a home, look at how the landscape can help with utilities. For example, our house is on the east side of a small mountain which provides more shade on hot summer afternoons. Huge trees on the east side of the house reduce summer heat, but let in all the sun’s warmth during the winter when the leaves are gone. More natural yard space can reduce lawn maintenance and watering.
Tyler says
I also have contested property taxes successfully. It’s extra fun to contest them during a mortgage refinance because you get to try to convince the appraiser that your house is super nice and worth lots of money while simultaneously trying to convince the assessor that your house is super crappy and not worth a lot of money.
Andre says
In FL, if you declare your domicile residence as your “homestead,” the county can increase your assessed value a max of 3% per year (or annual change in CPI, whichever is greater). For a commercial or investment property (otherwise, a non-homesteaded property), the count can increase the assessed value by up to 10% per year. Every year, the assessed value of my investment property goes up 10%; I might be forced to sell before too long.
Jim McCorkell says
One thing that very few people seem to consider is purchasing a duplex. When we first got married we rented a unit in a duplex. Pretty quickly, I thought to myself: maybe I should buy one of these for myself and rent out the other half.
We did that, and eventually ended up buying four more duplexes to rent out. In most cases you can buy a duplex, rent out the other half, and either live in that house totally for free, or for less than you would pay to rent a modest apartment.
Obviously, this may not be for everybody, but in our case it’s allowed us to have a beautiful home in a lovely urban neighborhood that we probably couldn’t have afforded otherwise. Now that we own it out right, we collect over $40,000 a year in rent just for living in our own house!
ESI says
I love this idea!
If I was starting over again, I’d do it!
Unfortunately I wasn’t smart enough to know about this option when I was younger. 🙁
RE@54 says
If you can, get whole house fans for the house. We bought one 15 years ago and it has been great. AC bill goes down and the AC last longer since you use the AC less. It save money on AC upkeep and replacement. You just open windows when it it cool and run the fan. It cools the inside of the house and pushes the hot air out of the attic. Shut the windows and turn the fan off and the house stays cool the AC may not even come on during the 95 degrees. It all depends on how cool the evenings and mornings are. Added plus, fresh air coming inside. Works great in CA.
You can install them yourself or have a company come in and do it. We had a company do it. It took about three hours.
The link below shows what they look like and how they work. It is not an advertisement for a company. I am not a salesman. Really.
https://quietcoolsystems.com/whole-house-fan/
ESI says
We got one a couple years ago and LOVE it!
We blow out the house early in the morning and late at night (when it’s cool) in the summers.
As a result, our AC kicks on around 4 pm (even when we have 90 degree days) and hardly runs at night.
$3.0M+ says
Yes, we got a similar system about 5 years ago and I installed it myself. It is still going strong, and after the installation, the electric bill dropped considerably. ROI was about 2 years on ours based on the summer electric bill reduction.
Steve says
YMMV. Whole house fans don’t work well in humid climates. Even in Central PA, much of the summer it only drops to the low 70’s or upper 60’s at awful levels of humidity. Not worth filling your home with that air before the day heats up. When I lived in the SF area, almost every night was low humidity and 70F or less; a whole house fan was perfect!
Andre says
I installed a 20-watt solar-powered attic exhaust fan in the gable attic vent of my second floor. It was powerful, ran quiet and smooth, and ran continuously during daylight. But the motor burned out after two years. I replaced it with a hardwired attic exhaust fan and set it to a timer; it turns on at 8:00am and off at 2:00am. I even bought the exact same fan in case this one burns out; it’ll be an easy replacement.
Mitch Klann says
If your lifestyle and the market allows for it buy and sell your primary house once every two years. Buy a house that needs improvements, make those improvements over 2 years, sell and repeat, each time preserving the capital gain and paying no taxes on it. Most people after 10 years and a favorable market are paying mostly if not cash for their house. It is not what I did but my Aunt and Uncle did and I have one family friend that did it. If I was to do it over that is exactly what I would do. It also keeps you from accumulating all kinds of stuff you don’t need and gives children new jobs every two years. It is what I am teaching my son.
You can sell your primary residence exempt of capital gains taxes on the first $250,000 if you are single and $500,000 if married. This exemption is only allowable once every two years.
Millionaire73 says
One thing I did several years back is “smarten” up my home with ring door bell/floodlight/security, Ecobee thermostats and individual room sensors, smart sprinkler system (Rain Machine), smart water meter and electricity (sense) and a robot to clean the pool (Polaris) and pretty confident they all paid for themselves within a year (and are pretty cool) + I call yearly on security to get lower price as well as keep my eye on electricity prices (Texas is degregulated) and very hot in summers 🙂
Like ESI, I used to “sweat” everything big and small but over time focused on the bigger items + areas where an investment (i.e make home smart would have a good ROI).
One unique area that I have deviated from the “norm” as have not have house insurance for 10+ years as the combination of it being pretty expensive in Texas (3-4K a year on my house) vs the risk (newer home in master planned community) and value of home (400K) made it something that made sense to me. Obviously if there is a house fire than I will regret but I did make sure every room has a smoke detector.
On an aside, as mentioned above Texas has high property tax rates (3-3.5% of appraisal value) so I use a service that goes and fights to reduce my appraisal value each year and they take 50% of the savings and have got it reduced 4 times in 10 years.
Millionaire73
https://esimoney.com/millionaire-interview-73/
Apex says
According to the stories here it seems like Texas is over assessing and expects a number of people to challenge it. That is not my experience in MN. I am actually the only person I know who has ever successfully challenged an assessment. I know it happens but its a high hurdle and it requires a unique situation like the two I described above for it to be successful.
Perhaps the fact that we have one of the highest income tax rates in the nation makes it so that they don’t try to take any extra from property tax. Our property tax rates are usually 1-1.5% of assessed value.
Andre says
Regarding property insurance, I purchased both my FL residence and FL investment property (future retirement spot) as foreclosures at the end of the real estate crash; so no mortgage and no requirement for property insurance. I went bare like that for a few years, then shopped around for the bare minimum coverage + $1 million liability. Only one insurer would cover me due the age of the structures (1957 & 1978), and got coverage for $400 and $500 per year. Even though my residence is 3 miles off the beach and investment property is right on the beach, I comfortably declined “windstorm” (AKA “hurricane”) coverage, which would have added about $1200 to each policy. They didn’t ask about my credit score or run my credit. I’ve got an 811 score, so I’m going to see if that’ll drop the rate.
Phillip says
Additional practice that worked for me:
Get a high credits score as fast as possible (e.g. 780+). My research shows the best rates are given to those with 760+ FICO scores and you need a bit of buffer above this due to modest changes in scores from other activities (new card/utility/insurance applications, balance fluctionations, etc).
Leverage your great credit score to shop around for better rates on recurring services. Loyaty does not pay. Specifically: home/auto insurance, no-fee/points mortages (before I paid off my mortgage in early 2000s, I could refinance with zero cost and still get a lower rate if rates dropped more than 1% from what I was paying), credit cards (promos and rates), brokerage firms (for transfer bonuses and margin rates), and perhaps internet/cable service.
A few phone calls netted me hundreds/thousands for more-or-less the exact same thing.