Managing a project, even after you’ve hired a contractor, is a stressful experience. Between spreadsheets, invoices and paperwork, you’ll find yourself practically swimming in things to do. What you picture as the end result will influence your budget, the renovation time frame and what part of your house you choose to remodel. We’ve developed this guide to help you complete any renovation project you start–no matter how complex.
Before you decide to renovate your home, here’s a quick list to make sure it’s the right decision for you at this time.
You should renovate if you want to…
increase your property value.
improve your standard of living.
expand your existing space.
replace outdated fixtures.
You shouldn’t renovate if you…
don’t have the time to coordinate a big project.
lack the finances to renovate.
don’t want to live through a remodel.
Typical costs for a reno project
All renovations are different, but kitchens and bathrooms will usually be the most expensive to undertake. A kitchen can be especially costly, with full remodels sometimes reaching dollar values of $50,000.
Completing a full renovation can cost as much as buying a new house. Replacing the roof, floors, plumbing and electricity of an older home will often need budgets that soar well over $150,000.
For most typical renovations, you can expect to pay less than $10,000 as long as you’re not replacing major appliances and plumbing.
The best way to avoid going over budget or your reno taking weeks too long is to plan carefully before you start tearing down walls and picking out paint. Below are some helpful that can guide you from idea to finished product.
Assess your property
Arrange for a home inspection to identify if there are any structural problems. This will determine if there are any hazards or problems from the outset, rather than creating stress and hassles if you discover them halfway through the renovation.
It’s a good idea to have your home appraised by a property lawyer to determine its value as well as the projected value once the renovations are completed. You should also speak with local real estate agents to see if they have any further recommendations about how you can boost your property value for the specific location and market.
Apply for building permits
Your home renovation must meet basic requirements for health, safety and structural soundness as set by your local municipality.
Get HOA approval
If you live in an area with a homeowner’s association, you’ll need to run any exterior plans by the council before getting started. Owners of condos may have to request permission for interior changes as well. Check with your HOA before starting a new renovation.
Set renovation goals
Set realistic goals for everything you’d like to achieve during the renovation. Separating necessities from luxuries–the things you need versus the things you want–will help you stick to your budget and ensure that you finish your project on time.
Plan renovation stages
If you’re contemplating a major renovation, you may want to consider planning the renovation in stages. For instance, you may want to take a break between upgrading your master bathroom and gutting your kitchen. Breaking your project into stages can give you the time you need to get your finances back in order, and it also provides you with a breather between large renos.
Set a project budget
You should break down your individual costs for each part of the renovation. If you’re planning to tile an area, you should separate the costs for each separate task: waterproofing, tiles, labor estimate. This will help you keep tabs on how much you’re spending.
Once you’ve broken down your costs, you’ll need to estimate your renovation expenses. Ensure that you request quotes from at least three different professionals for each major task. Building inspectors, contractors, plumbers, electricians and engineers are all common services people need when undergoing a home renovation.
As a rule of thumb, you shouldn’t spend more than 5% of the property purchase price on a renovation project, though this may vary depending on your individual circumstances.
It’s crucial that you allow for hidden costs such as council fees and allow for a contingency buffer of at least 10% to 20% of your budget so you’re prepared for any unexpected costs that may come up.
A renovation contract defines the agreement between you and the builder and outlines the responsibilities of both parties. Here are some of the elements that should be covered in your renovation contract:
Scope of work. This includes a description of the work to be carried out by the builder and the work to be carried out by independent parties.
Time frame. The contract should identify the start and completion dates for the project and include a statement saying that the builder is not responsible for delays for circumstances beyond their control.
Payment terms. This should determine how much you will pay the builder, how often your payments will be made and how taxes will be handled.
Variations. Once the renovation is underway, any variations or changes to the work must be drafted as a variation document and signed by both parties.
Exchange insurance policies. Builders must obtain a policy of your homeowners’ insurance before beginning a renovation. This policy covers you for defective or non-completion jobs. Your builder should also have their own insurance to cover any problems that might arise with their service.
Although you may have planned your renovation carefully, chances are you’ll need to make some changes to the original plan. Licensed builders will be accommodating of any changes or additions you want to make throughout the project, but always consult your builder before straying from the contract.
Should I live in my home during a renovation?
This decision is completely up to you. Small projects may not require that you move out, but if you’re completely gutting your home and building everything from scratch, you may want to find an alternative place to live. Your budget will be the main factor. Can you afford to pay for a hotel or a month-long rental? Can you live with relatives or friends while your renovation is being completed? If you can’t, staying in your home and making due will be your least expensive option.
Making plans for a renovation isn’t the same as having the money on hand to pay for the changes. When it comes to finances, what works well for one person may be the wrong choice for another. It’s very important you work out exactly what your reno will cost and then consider your options based on your own personal financial situation.
Construction loan. A construction loan is similar to a personal loan, but the funds are earmarked for a specific project. These are useful for people who know exactly what they need to get done and who plan on undertaking a large project.
Personal line of credit. You’ll only be charged interest for the money you use, which makes these a less expensive option than personal loans.
What should you ask your lender before a renovation?
Before you sign on the dotted line for your building contract or finance documents, make sure you prepare some questions for your lender.
What fees are involved?
Always ask what fees and charges you’ll have to pay when setting up your loan. Some lenders will charge application fees or origination fees. Some will charge a monthly account fee that you’ll need to pay on top of your normal payments. There are plenty of large fees that can quickly become overbearing, so request a complete list from your lender before agreeing to take out a loan.
What is the APR?
While the advertised interest rate may appear competitive, always check what your APR will be. APR is the total cost of a loan, including all possible fees. If you see an APR that is only marginally higher than the actual interest rate, you’ll know you aren’t being hit with additional fees and charges. However, if the APR is higher than the advertised interest rate, ask what fees apply to your loan.
What loan features are available?
Look for features such as flexible repayment plans, which allow you to make extra payments without penalties. Some lenders have apps that make payments easier, and many offer financial guides to help make the budgeting process simpler.
Overcapitalizing on a renovation project
All renovations run the risk of overcapitalizing: when the cost of the renovation outweighs the amount of value added to the property. If you’re renovating your home, and you intend to live in the property for an extended period of time, then the risk of overcapitalizing may not be as high. You may have spent $75,000 on the renovation and only increased the property value by an additional $25,000, but you have time for inflation and appreciation to kick in.
However, if your intention is to increase the value of the property to sell and make a profit, you could be in for a shock. Many investors underestimate the real amount of money they need to spend and overestimate the amount they’ll get on resale of the property.
You have two options if you spend too much on your renovation. You can sell the property anyway and take a loss on the amount you spent, or you can hold onto the property and hope that the market turns in your favor over time to help recoup some of your costs.
John and Jane renovate their kitchen
John and Jane want to spend $15,000 on a complete kitchen renovation, but they aren’t sure if they should opt for a personal loan or a home equity loan.
In this example, the payments for the home equity loan more affordable at just $124.56 per month, but John and Jane will end up paying almost $7,500 in interest over the loan term.
Home equity loan
Total Interest Paid
They can afford the $320 monthly payment that comes with the personal loan. Since this will mean they pay less interest and are finished with their loan sooner, John and Jane choose to go with the personal loan instead of the home equity loan.
Many renovators base their property price research on causal searches on real estate websites. They see that similar homes in their area are selling for good prices, but they fail to take into account that different streets within suburbs can have very different price thresholds.
Neighboring homes can have an effect on your final sale price, especially if they have poor curb appeal. Always think about your intended market and the demographics within the local area before undertaking a large renovation.
One of the biggest mistakes many renovators make is underestimating their project costs. Getting quotes on the cost of building materials is a start, but you should also factor in contractor’s fees, permits, labor costs, professional fees, taxes and your contingency. Most people don’t think about these elements, causing them to underbudget and overspend.
DIY projects your not qualified for
While DIY projects can be a good cost-cutting tactic, it’s important to remember that there are some tasks that are best left to the professionals. If you undertake DIY projects yourself and aren’t competent, you may have to spend money fixing faulty work further down the line.
Not sticking to a budget
A shortage of funds may mean that you’re unable to finish the project. If your renovation isn’t completed, you won’t be able to sell the property at the profit you initially anticipated. While it’s tempting to opt for luxurious fittings or finishes, try to stay within the parameters of your budget to avoid leaving any work unfinished.
Renovating the wrong elements
A common problem with many renovations is that the owner has spent money renovating the wrong elements and has chosen options that are unlikely to add value to the property type and location. To avoid this, ensure that you engage in thorough market research and consult professionals who can guide you through your renovation planning. Generally, you should avoid spending the bulk of your budget on low-traffic rooms or areas that are not used frequently, such as a guest bedroom or laundry.
Underestimating the disruption factor
While the thought of a modern and completed renovation is exhilarating, you need to carefully consider the reality of the project in process. A large-scale renovation can be noisy and disruptive to family life. Stress can quickly build up in a construction zone, so take the time to make a plan for relaxation during the renovation.
Selecting a builder based on price alone
While it’s always tempting to go for the lowest quoted price, you need to consider the implications of doing so. Does the builder have the required experience? Will they provide a warranty on the project? Does your builder have pictures or references you can use? These are important questions to ask when selecting a builder. If you don’t, you may be stuck with a lousy team that doesn’t work the way you need.
Ensure that you read the quotes you receive and check to see what’s included and what isn’t. Ask for quotes to be itemized so you can see exactly where your money is going. Once you’ve compared all your quotes, negotiate with your builders to see who can offer the best value for money.
Prime cost (PC) allowances
A PC item is any item with an estimated price which means that the illustrated price is not fixed and the actual cost can vary significantly. If you can, try to avoid PC allowances so you have a clear understanding of your costs and can better manage the cash flow for your renovation.
Inclusions and exclusions
Always insist that your quote and your contract contain an accurate list of all inclusions and exclusions. Be very careful when negotiating for exclusions. What builders charge you to add in certain items may not be the same amount of money they deduct to exclude it.
Most builders include a clause in their contract for variations or changes to the scope of work. For instance, if the builder discovers termites or damaged pipes halfway through the project, that would create a variation. Always try to get a copy of any invoices or receipts for materials and labor costs to ensure you’re paying the agreed rate.
You may find that some quotes may only be valid for a certain period of time. If you’re shopping around for quotes right now but you don’t expect to start your project for another few months, you need to verify that the amount you hope to spend is still valid in that time. If your quote has expired, you may find that costs have risen, which can impact your budget.
It’s one thing to choose the cheapest quote you receive, but it’s a different matter if the time involved in completing the work turns out to much longer than you anticipated. If you’re paying interest on a loan throughout the renovation period, an extended delay or slow work times can increase your overall costs. Always compare the estimated time to complete when assessing quotes.
The timing and schedule of your renovation is up to you. If you are doing much of the work yourself, you determine how long it will take to get things done. You might be restricted to only working on your project on weekends or around working hours. If you have a builder involved in the project, your builder should advise you of an estimated time frame for completion.
If you have the skills and the time, you can stretch your renovation dollars by taking on some of the work yourself. Generally, builders recommend that you leave structural and mechanical renovations to the professionals, but many homeowners can competently do their own painting, landscaping or other finishing jobs. Talk to your builder about the effect of do-it-yourself work on scheduling and the builder’s warranty, keeping in mind that you should try not to interfere with the way the builder intends to manage the project.
A critical decision involved with your value-adding capabilities is associated with selecting the right property type for your needs. If you can find an unpolished gem at a bargain price in a good suburb, you’re off to a great start. From there, it’s all about maximizing your returns and ensuring you get the best possible sale price for a renovated home in that location.
Small projects to increase value
There are times when simple upgrades can yield greater profits than large-scale projects, especially for a homeowner not looking to spend a lot of money on renovations.
Paint. Freshening up the paint in a room or on the exterior of a house is a cost-effective way of transforming the appearance of a property.
Curb appeal. No matter how good the interior renovation might be, it’s the curb appeal that can sway a buyer’s decision. Clean and fix areas that need it, and don’t be afraid to plant shrubs and flowers that draw attention to the beauty of your home.
Floor coverings. Consider replacing faded, worn carpets or worn vinyl flooring with more modern options. It’s easy to transform a room into a more appealing space by renewing a floor.
Large projects to increase value
There are properties that can be improved enormously by completing a larger project. This is especially true with older homes that may not have the same amenities and living space as ones built recently.
Outdoor entertaining area. Adding a pergola or patio can be a big draw for many buyers, especially if the outdoor space flows smoothly from the interior of the home.
Kitchen. Updating a kitchen can be helpful for improving property values, but be sure you plan a functional kitchen design that leverages the available space and has modern fixtures to avoid losing money on your investment.
Living area. Some older homes feature floor plans that have a small living area and a separate dining room alongside it. You may be able to improve the floor plan and create an open feel by redesigning what you have to create more space.
Bathroom. Update old tiles and fixtures, and don’t hesitate to create more storage space while you’re reshaping the area.
Laundry. Many older homes have enormous laundry areas that are underutilized. Beyond updating old appliances, a big space may be separated into an additional bathroom to add more value to your house.
More tips to increase your home’s value
Not sure what else to do? Here are some more things to keep in mind when completing a big renovation.
Don’t spend too much. It’s unwise to pay more than 2% of the property value on a kitchen or bathroom remodel.
Use big tiles. Use horizontal tiles to make the room appear bigger.
Due diligence. Ensure you ask your local municipality whether there have ever been any building applications denied or withdrawn for the property, what the zoning is for the property and the surrounding neighborhood and what development applications have been processed in the vicinity of the property. Big commercial or even residential developments are a bad sign.
Invest in things that can be seen. For instance, if your renovation is mainly cosmetic, tearing down drywall to replace insulation may not be worth the expense.
Check the return on investment. Make a minimum of $2 of return per $1 spent.
Lift sales. Sell all the materials from your renovations at a demolition sale.
Consult professionals. Surround yourself with qualified and trustworthy tradesmen.
Renovate big ticket rooms first. Upgrade your kitchen or bathroom and then have your bank to reassess your home’s value once these are completed. Use the proceeds to fund your cosmetic renovations.
Frequently asked questions
You shouldn’t spend more than 15% to 20% of the property value on your renovation. However, it’s still important to consider how much value you can realistically add to a home in the local market. Research median property prices, median rental yields and price growth trends.
Have your home evaluated so you know exactly how much it’s worth in its current state and seek the services of a real estate lawyer and local agent so you know how much value you can potentially add once your project is finished. Look at similar properties in your suburb and take note of the sale price. Consider how long it took these properties to sell, and contact a local agent to see what the sale price was. If the sale price was significantly lower than the initial asking price, the renovations you’re looking at completing may not be worth it.
This market research can also help you decipher which types of renovations are more likely to add value to your property. For instance, some real estate agents may advise for you to upgrade your bathroom and kitchen to achieve a better sale price in the given suburb.
The most important thing? Research. Don’t spend more than you have, and keep your renovations on budget to avoid spending too much.
It’s well-known that kitchen and bathroom upgrades are some of the best ways to add value to your property. If you’re debating on choosing one or the other, the decision depends on your budget. According to Remodeling Magazine, both kitchen and bathroom renovations yield about the same return on investment.
You need to secure permits if you’re not seeking the help of a contractor. Small jobs, like replacing tiling or painting a room, won’t require a permit, but any jobs that may impact the structure of your home will need to be accessed and improved by your local municipality.
If you’re part of a homeowner’s association, you may also have to seek their approval before proceeding with any exterior renovations, even changes as simple as painting.
Communication. Good builders need to communicate the progress of your renovation, update you on the changes and ask permission before executing any major changes to the contract.
Expertise. Ensure that your builder is licensed, insured and has relevant experience to carry out the required work.
Reputation. Experienced builders will be happy to provide you with references and testimonials from previous customers as well as a portfolio of completed work.
If you’re worried about being unable to get a loan because of your credit history, there are options for you. These generally have less-optimal interest rates, but can be helpful when you don’t have any other way to complete a needed renovation.
Kellye Guinan is a seasoned financial writer with over 500 articles under her belt spanning all things loans from auto to personal to business and everything in between. With four years in the field and five years of research experience, she's able to make complex personal finance decisions easier for everyday people to tackle. When she's not up to her knees learning about the latest trends in lending, she spends her time improving her own financial literacy and expertise.
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