Renovation Series Part 3: How to Budget for a Home Renovation
Ah budgeting. The word that makes most renovation seekers cringe. To many people, budgets are considered a necessary evil of a renovation project. But they should not be feared. They are the tool that allows you to complete a renovation you will be proud of. A poorly thought out renovation budget, (or a complete lack of one) will result in a nightmare of a renovation. The project might even have to be halted before it’s complete. Let’s look at some ways to decide on your renovation budget, determine if your budget will cover the desired renovation, and stay on target during the entire renovation.
So far you have determined what you want to accomplish with your renovation by following the 3-step guide to determining your purpose. Now it’s time to crunch the numbers and make sure your goals for the renovation align with your budget.
How much are you willing and able to spend?
The first step to home renovation budget planning is knowing how much money you have to spend. It is best to clearly set a limit before the reno begins so that you don’t feel like you bit off more than you can chew once the renovation is complete. It would be hard to truly appreciate your completed project if you knew you spent more than you could comfortably handle.
How will you finance the renovation?
Do you want to pay for the renovation with cash? – Financial experts would probably applaud this choice. Not going into debt for a renovation is a comfortable option.
Do you plan to take out a loan? If so, how much are you able to comfortably pay back on the loan every month? – There are a lot of things to consider when taking out a loan. Seek expert advice if you have loan questions.
Do you have equity in your home that you plan to use towards the renovation? – This is usually in the form of a home equity loan or home equity line of credit. Seek expert advise for these too.
Do you plan on winning the lottery to pay for the renovation? – I dare to dream, but not this big. I suggest that you don’t either. It’s best to be clear about where the money is coming from and not to hope for a windfall you can’t count on.
Keeping Your Home’s Value in Mind
If one of your priorities is resale value, it is a good idea to know how much you can sell your house for once the renovation is complete. Check out real estate sites like Zillow or Trulia to scope out other homes in your area. See what they are selling for. Try to compare your future renovated house to the houses for sale. Look at total square footage, bedroom and bathroom counts, age of home, and type of basement. Look at the pictures to determine the quality of the house. Does it look dated? Does it have an open floor plan vs closed floor plan? Does it need a lot of cosmetic work like painting the siding? Try to find a house that best matches your future renovated house and see what the listing price is.
A realtor can also help by conducting a comparative market analysis (CMA) of your proposed renovations. A good way to have this done is to contact an agent you have been working with or hope to work with in the future and with whom you would like to establish a relationship. This takes time on their end to conduct the market value research so they want to see the value in doing the work as well.
You know how much you plan to spend. Now what?
It is a good idea to have some understanding of material and project cost before getting a contractor involved in your renovation. Researching material cost doesn’t have to be tricky or time consuming. One of the best places to go for ballpark material costs are big box store websites. These stores carry a giant selection of building products from insulation to bathroom fixtures. You can easily search for the product you want and see the cost of the material.
Another, less accurate, tool for estimating renovation costs is to conduct an online search. Go to your search engine and type in ‘drywall cost per square foot’. An estimated price range will pop up that will give you a ballpark idea of material and labor costs. Keep in mind that these numbers are usually an average for the country, so if you live in a high cost of living city, your material and labor price might be higher than projected on the website.
You can also do an online search for renovation budget calculators. Multiple sites offer an easy calculator that will give you a ballpark price range for a specific area of renovations such as a bathroom reno.
Researching products will get you in the mind frame for talking numbers with construction experts. Having some knowledge of material and installation costs will make you feel more confident going into the renovation.
If you plan to hire a contractor to do the renovation work for you, this person will be the best resource for pricing the project. The contractor will perform an in-depth estimate that calculates material cost, labor cost, and all the other hidden costs most people don’t think about (like permit fees and dumpster rentals!) Keep in mind that cost estimating is a time consuming task. Only ask a contractor to give you a thorough estimate if you are planning to follow through with the job.
It is wise to have multiple contractors quote the renovation so that you can compare prices. I like to get three different quotes for accurate comparison. It is amazing how varied contractor pricing can be since so many variables go into pricing a project.
It is also wise to build in a contingency to your renovation budget if the contractor did not do so. A contingency is ‘extra’ money held in the budget to cover any unforeseen budget spikes.
If you don’t have the time or the desire to do this much budgeting leg work, let a design expert help you. Architects and designers are used to working with contractors and can help take some of the work load off of you.
If you haven’t yet, now is the time to bring on the spreadsheets! If you don’t love spreadsheets, but want a smooth renovation, learn to embrace them. Organization and clarity are keys to staying on track with your budget. A simple spreadsheet can be used to calculate your total budget, and keep track of what you have already spent and what you have left to spend. This is an invaluable tool to make sure you stay within your budget throughout the renovation.
Microsoft Excel has a few home construction and home remodel templates that allow you to enter itemized expenses. You can enter how much you budgeted for each item and how much you actually spent. The spreadsheet will keep track of the total amount you have spent, how much you have left to spend, and let you know if you are exceeding your budget.
Monitor Your Renovation Budget
Setting the renovation budget is not a one time deal. Once you know how much you have to spend and how much the renovations will cost, you have to continually check in on the budget to make sure you are staying on track. This is the real value of the spreadsheet you have created. Update your spreadsheet every time a purchase is made or work is performed. Don’t be afraid to talk to your contractor if you are unsure of the value for the amount of work that has been performed. Bottom line, don’t ignore your budget! Monitor it the same way you monitor your personal spending.
A renovation budget combined with a clear plan for the renovation will make your project go smoothly and give you the end result of your dreams (not nightmares). I hope you are getting pumped to start your renovation!
Next up, I am going to give some tips on what to do if your determined budget doesn’t cover all of the renovation work you hoped to achieve. The first thing to do is not give up! There is a solution to every problem and paring down a renovation to meet your budget will probably not crush your dreams as you may imagine it will. So stay positive, and stay tuned for my next post!