Figuring Renovation Costs

How do you figure out what your renovation will cost? How much should it cost? How do you set an appropriate budget? What is the likely payback at resale? How can you maximize your return on investment?

This section lays out the main factors that influence the economics of your renovation.

Cost
Renovation Cost Will Vary By…

• Type of renovation
• Materials used
• Geographic market
• Finishes used
• Resources used
• Cost of permits
• Cost of cleanup
• Contingencies/unexpected
• Move or stay/storage
• Your time invested
• Eating out or ordering in

At its simplest, cost is a function of materials, time and labor, and local market conditions. Getting multiple estimates will give you a better idea of what to expect.  A good rule of thumb is this – whatever amount you’re zeroing in on – multiply it by a factor of 1.25 to 1.5 to cover changes, contingencies, and Murphy’s Law.  Seasoned remodelers know that the unexpected always occurs, so just go ahead and plan for it.

Budget

If you’re like most of us, your list of needs and wants will exceed your ability to foot the bill. While the actual cost of renovation varies tremendously, you still need to establish a budget.  Generally, 20% to 30% of the value of your home is an acceptable amount to invest. For example, if your house is appraised at $200,000, it’s reasonable to invest another $40,000 to $60,000 in improvements.

Factor in some of the following:

• What you may have set aside
• What you can borrow and the interest rate you can get
• What is a reasonable monthly payment?
• How long you plan to live in the home

Maximizing the Return On Your Investment
How do you know if your investment is going to pay off? You may not be planning to sell any time soon, but you want some idea if you’ll recoup your renovation dollars.  If you are looking at resale soon, consider renovations that give you the most bang for your buck.

What do the experts say about the best value for your renovation dollar?  Annual cost versus value reports, surveying some 60 markets across the U.S. show that when it comes to payback, the following renovations have the highest return on investment:

• Kitchen
• Bathroom
• Re-siding (for curb appeal)
• Master suite additions
• Attic bedrooms.

When looking at these statistics, remember that the values in your local area or particular situation may differ.

Unforeseen Structural Problems

Until you open the floors and the walls, you can never be sure how much it will cost if you are renovating an older house.  Adding a second or third floor to an existing home, or lowering the existing basement floor slab will require specific structural design solutions provided by a registered structural engineer.   When buying a home, keep in mind that a typical house inspection cannot find all the problems.

Unrealistic Budgets

Most homeowners do not know how expensive building their ideal house can be. Construction prices have increased a lot over the last decade. And quality craftsmanship costs money. Plus there is a shortage of manpower in most urban cities.

We heard of a man who was building a mansion and was proud to be right on budget in the early stages of construction, even though he was told that he had underestimated the total cost.   Never bust your budget on the rough of a new construction. The challenges come with the finishes and the interior design.

So if you wish for the $1 million look at a quarter of the price, you need to be really careful on where you splurge.  Splurge on things that require lots of time and money to replace and wait until later to upgrade the things that are easy to replace, like the bathroom fixtures.

Being Carried Away

When you go tile shopping, it is easy to say it is just $2 dollar more a square feet. Or why not add a pattern or a border. You need to take into account that the expense does not stop there. When you mix two ceramics, it adds complexity to the installation.  Adding just three square border shapes on a bathroom floor seems simple, yet it will take a good tile man almost a full day to align things perfectly with the change of dimensions.

There are plenty of occasions to add a few hundreds of dollars in a big renovation job; so extras add up fast.

Lack of Planning

Based on years of experience, I believe the best way to not bust your budget is to carefully plan everything in advance. This way, you eliminate costly building mistakes (ex: changing twice the position of a wall) and you reduce the chance to be carried away.

Better planning makes sure that you get what you really want and that the ensemble is cohesive. My best advice is to examine and evaluate many times the entire plan and all the finishes before you start building. You may need to do some demolition to grasp the full potential first. But it is a small price to pay to get the house of your dreams on budget.

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http://housecallsprojectmanagement.com/