Why Appliance Upgrades Rarely Pay Off

I’m good at most financial matters, like prioritizing my retirement funds. However, I am a bit weaker when it comes to financial decisions regarding our home. At one point I was driven crazy by the fact that the handles on my kitchen appliances didn’t match up. Earnestly. handle.

If I end up spending more money than I should on anything, it’s going to be family-related. I learned to face the facts and deal with them.

I think there are many people like me. They see their home as a reflection of themselves and obsess over its flaws (or perceived flaws). That’s why we understand if you can’t stand the sight of refrigerators sitting side by side, because what you really need in your kitchen is a refrigerator with French doors.

This is not to say that replacing a broken device never makes sense. What I’m trying to say is this: You’ll likely have more money in your bank account if you just replace your appliances when you have no other options. There are two reasons for this.

1. Actual cost

The good folks at This Old House say that appliances are often replaced before they are needed. Whether it’s a “hot” product or a sudden change in consumer preferences, many home appliances end up on the farm long before their end of life. According to the International Association of Certified Home Inspectors, the average lifespan of major appliances is:

• Washing machine: 5-15 years
• Dryer: 13 years
• Refrigerator: 9 to 13 years old
• Garbage compactor: 6 years
• Dishwasher: 9 years
• Microwave: 9 years
• Gas stove: 15-17 years
• Electric range: 13-15 years
• Freezer: 10-20 years

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Let’s say a new homeowner named Sam moves into a house with an ugly refrigerator. The problem is that it’s only been 3 years. If Sam allows the refrigerator to reach the end of its life, he can live with that smelly refrigerator for another 10 years or so. The refrigerator Sam really wants is on sale for $2,300. Sam sells his old refrigerator for $300 and takes an additional $2,000 from his savings account to buy the model of his dreams.

Even if Sam pays for the refrigerator in cash, it ends up costing him almost twice as much. Here’s how:

• Sam withdraws $2,000 from his bank account. They are happy with that decision because they already have an emergency fund set up.
• But what would have happened if Sam had invested that $2,000 instead? Let’s say Sam opens an IRA, deposits $2,000, and he doesn’t deposit any more. If the account earned a (realistic) average annual rate of return of 7%, Sam’s balance would be just under $4,000 after 10 years. That’s when your ugly old refrigerator reached the end of its useful life.
• Due to ‘opportunity cost’, the refrigerator cost Sam twice as much as expected.
• If Sam had waited until the first refrigerator died, they would have an extra $4,000. Even after Sam buys the new model, it will cost him more money.

2. Low return on investment (ROI)

When homeowners decide to put their home on the market, one of the first things they want to know is how much money they’ll be walking away with. A secondary concern may be whether your home will stand out compared to the competition.

Even if you’re selling your home for the first time, you’ve probably watched enough HGTV to realize how important the kitchen is to potential home buyers. For example, the Zillow Group Consumer Housing Trends Report 2018 found that 58% of buyers consider it “extremely” or “extremely” important to find a home with the kitchen style they prefer. This is a huge burden for homeowners who have kitchens with not-so-modern appliances.

And some people simply believe that installing new appliances in their home will catch the eye of potential buyers and cause a bidding war. It could happen, but it’s not likely.

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On average, a new appliance delivers an ROI of 60 to 80 percent. To illustrate, let’s say our friend Sam has decided to sell his house, but first wants to outfit his kitchen with new appliances. Sam chooses average-priced appliances. Here’s how much Sam spent:

• New refrigerator: $2,000
• New dishwasher: $1,000
• New microwave: $300
• New gas range: $1,000

Sam spent a total of $4,300 to install new appliances in his kitchen. If Sam’s ROI was average, he would earn between $2,580 and $3,440.

Unless your existing device is truly crappy or not working, there is little point in installing a new device with the expectation of breaking even.

In today’s market, homes are sold out almost as soon as they hit the market, making it even less sense to shell out more money than necessary to stage your home.

What happens if my appliance doesn’t work?

The rule of thumb is: If your appliance is more than halfway past its expected lifespan and the cost of repairs is more than 50% of the cost of a new appliance, it makes financial sense to replace it.

If there are safety concerns, the rules go away. For example, if your stove is leaking gas or an appliance is a potential fire hazard, do what you have to do to protect your family, even if it means replacing it sooner than expected.

There is nothing cheaper than becoming a homeowner. In fact, the actual cost is surprising. At some point, it helps to know what your home is worth. This is one of the largest financial investments of your life.

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