Why Upgrading Your Appliances Almost Never Pays Off

I'm good about most financial matters, like prioritizing our retirement fund. However, I'm a bit flakier when it comes to financial decisions regarding our home. I was once driven to the edge of sanity by the fact that the handles on our kitchen appliances didn't match. Seriously. Handles. 

If I'm going to spend more than I should on anything, it will be home-related. I've learned to face the fact and deal with it. 

I suspect that a lot of people are like me. They see their homes as a reflection of themselves, and they obsess over flaws (or perceived flaws). That's why I understand when a person can't bear to look at their side-by-side refrigerator because what their kitchen really needs is a fridge with French doors. 

I'm not saying it never makes sense to replace a broken appliance. What I'm saying is this: More often than not, we'd have more money in our bank account if we only replaced an appliance when there was no other option. Here are two reasons why.

1. The true cost

The good folks at This Old House say that appliances are often replaced before it's necessary. Whether it's a sudden shift in what's "hot" or consumer preference, many appliances are sent away to live on a farm long before their time. According to the International Association of Certified Home Inspectors, here's the average lifespan of major appliances:

• Washing machines: 5-15 years
• Dryers: 13 years
• Refrigerators:  9-13 years
• Trash compactors: 6 years
• Dishwashers: 9 years
• Microwaves: 9 years
• Gas ranges: 15-17 years
• Electric ranges: 13-15 years
• Freezer: 10-20 years

Example

Let's say a new homeowner named Sam moves into a home with an ugly refrigerator. The problem is, it's only 3 years old. If Sam allows the refrigerator to live out its life, they've got another 10 years or so with that stinking thing. The refrigerator Sam really wants is on sale for $2,300. Sam sells the old refrigerator for $300 and takes the additional $2,000 from their savings account to buy the model of their dreams.

Even though Sam pays cash for the refrigerator, it costs them nearly twice as much in the end. Here's how:

• Sam takes $2,000 out of their bank account. They already have an emergency fund in place, so they're comfortable with the decision.
• But what would have happened if Sam had invested that $2,000 instead? Say Sam opened an IRA, deposited $2,000, and never made another deposit. If that account earned a (realistic) average annual return of 7%, Sam's balance would be just shy of $4,000 in 10 years -- about the time the ugly old fridge would have died. 
• Due to "opportunity cost," the refrigerator ended up costing Sam twice as much as expected.
• If Sam waited until the first refrigerator died instead, they would have $4,000 extra dollars. Even after Sam purchased a new model, they would be money ahead. 

2. Poor return on investment (ROI)

When a homeowner decides to put their house on the market, one of the first things they want to know is how much money they're likely to walk away with. Their second concern may be the competition and whether their home will stand out in comparison.

Even if it's the first time a person has sold their home, they've probably seen enough HGTV to realize how important kitchens are to potential home buyers. For example, the Zillow Group Consumer Housing Trends Report 2018 showed that 58% of buyers thought it was "extremely" or "very" important to find a house with their preferred style of kitchen. That puts a lot of pressure on a homeowner whose kitchen is equipped with not-so-modern appliances. 

And then some people simply believe that outfitting their home with new appliances will dazzle potential buyers so much that it will set off a bidding war. While that could happen, it is unlikely. 

Example

On average, new appliances provide an ROI of 60% to 80%. For the sake of illustration, let's say our friend Sam decides to sell their home but wants to spiff the kitchen up first with new appliances. Sam goes with average-priced appliances. Here's how much Sam spends:

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

In total, Sam spends $4,300 to outfit the kitchen with new appliances. If Sam's ROI is average, they'll end up recouping somewhere between $2,580 and $3,440. 

Unless the existing appliances are truly wretched or non-functioning, it rarely makes sense to install new appliances with any expectation of breaking even. 

In today's market, with homes practically snapped up the moment they hit the market, it makes even less sense to pour more money into prepping a house than necessary.   

What if an appliance is not working?

The rule of thumb is this: If the appliance is more than halfway through its expected lifespan and repairing it will cost more than 50% of the cost of a new appliance, it makes sense for your finances to replace it. 

The rules go out the window if there's a safety issue. For example, if a stove leaks gas or an appliance becomes a potential fire risk, do what you need to do to protect your household -- even if that means replacing it before you expected to. 

There's nothing cheap about being a homeowner. In fact, the true cost can be eye-opening. At some point, it helps to see your home for what it is -- one of the largest financial investments of your life.