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Pay It Forward

Keep your renovation on time and under budget

About the author

Kate Ashford is a New York-based freelance journalist who writes about personal finance and health. She has written for Money, Real Simple and Redbook magazines.

(Thinkstock)

(Thinkstock)

Christina Ditto knew she wanted to buy her 1950s Cape Cod-style house from the moment she saw it.

“I was in that house for two minutes and I knew it was the one,” said Ditto, 46, who lives in Wisconsin in the United States. The house hadn’t been updated in years, but Ditto — an interior architect and designer — saw its potential.

So she had it gut-renovated. The process took almost five months and added about 50 square metres to the second floor, requiring the removal of the roof. She spent a little more than $200,000 but in the end, she was thrilled. The project cost exactly what she expected, something she credits to her own expertise as an architect and serious attention to every detail — right down to the number of nails the contractor intended to use.

“I think I’m rare,” she said. “I had no complaints.”

Some 40% of US homeowners have plans to remodel or add to their home, according to US home design site Houzz.com. On average, they spend $18,527 on a minor kitchen remodel or $15,782 on a bathroom remodel, according to Remodeling magazine. The same percentage of Canadian homeowners have renovation plans for 2014, at an average project cost of $19,754 Canadian dollars ($17,914), according to a Canadian Imperial Bank of Commerce poll. Of Australians between ages 18 and 64 with plans to renovate, the budget averaged A$16,130 ($14,925), according to Galaxy Research. In the UK, renovating homeowners spend about £13,000 ($21,856) on average, according to a survey by YouGov and Avant Homes.

With that much money on the line, it pays to make sure the project goes smoothly. Here’s how to keep your renovation on the rails financially and otherwise.

What it will take: You will need to research contractors, solicit and compare quotes, and either save up the funds or secure financing. There’s also a good bit of patience and perseverance required when you take part — or all — of your living space out of service.

How long you need to prepare: Experts recommend planning for renovations at least three to six months in advance — longer if you’re trying to save up the cash to cover it. If you need a loan to cover the costs, it could take several months to get financing in place before you can proceed.

Do it now: Make a plan. Have a clear idea of what you want and why you want it. “Understand why you are renovating,” said Julia Chung, a financial and estate planner with Facet Advisors in British Columbia. “Is it for resale? For your own use? The reason will drive your budget, materials, and more.”

Find the money. If you’re envisioning a home improvement that will bump up the value of your home, it’s usually fine to finance it — so long as your total loan, including the original mortgage, isn’t for more than 80% of the value of the home.

“I’m never in favor of leveraging yourself to the hilt for your house,” said Lisa Andrews, a financial adviser with Perk Planning in Wisconsin. If the project is solely for your own enjoyment and won’t boost your home’s street value, Andrews recommends saving up until you have the cash to cover it.

Over-budget. In general, renovations cost more than you originally forecast. “I recommend to clients that they build a 20% buffer into the expected costs,” said Rod Mudgway, a financial advisor with Brackenridge Financial Solutions in Auckland, New Zealand. That way, if the contractor discovers an unexpected problem, you have some wiggle room. The same goes for time — tack 20% on to whatever timeline your contractor gives you.

Get a project bid. Some contractors will offer to do a job on a “time and materials” basis — that is, at the end of the project, you’ll write one final check based on the contractor’s time and materials used.

“That is a recipe for disaster,” Andrews said. “Getting a bid up front means that this is what they’re going to charge you and unless you deviate from the work, that’s the price that you’ll pay.” Get at least three different bids on a project, and talk to both new and old references — it’s important to see how a contractor’s work holds up over the years. 

Read (and discuss) the contract. Some contracts cover only basic versions of the work and materials.

“Where the contract says ‘We will replace all the trim work in your house,’ you want to have a general understanding of what ‘trim work’ would be,” said Robert Dowling, a wealth manager with Modera Wealth Management in New Jersey. Ask your contractor about the materials he will use and what kinds of issues typically come up in similar renovations—and how much they cost.

Do it later: Prepare to make quick decisions. Many choices will have to be made along the way —a type of tile, a new door knob when the one you want is out of stock — and dithering can cost you.

“You can… add to your expenses if you are not good at getting decisions back within a reasonable time frame,” Andrews said. “I would expect most decisions in the midst of a project should be made within 24 hours.”

Hold final payment. Do not pay your balance until the work is completely done, Dowling recommends. Otherwise you may wait weeks for workers to finish a few small details because they have moved on to another job. Or, an inspection might turn up a problem with the work. Your contractor is more likely to come back if you still owe the rest of your balance.

Do it smarter: Ask around. Talk to industry professionals about which kind of renovations are good investments and which are not. “A client who came to me had spent over $100,000 on a renovation that did not increase the property value of her home,” Chung said. “And she did it on credit that is now causing her financial strain.”

Do your research. Renovations may require you to talk to your city about the work. Call your municipality about permits, cutting trees, and digging, among other things. “Town planning rules create layers of expense, so everything has to be well planned and thought out,” Mudgway said. You’ll save time and money in the long run by making those calls early in the process.

Don’t rush in. If you can, “live with the property for a while before deciding how and where to improve it,” said Michael Holmes, editor-in-chief of UK magazines Homebuilding & Renovating, Real Homes, and Period Living. Who knows — you may decide that the tiny porch you want to expand is actually the perfect size for an outdoor reading nook.

Besides picking paint colours, what was the biggest challenge you faced when remodeling your home or apartment? Share your experience on our Facebook page or message us on Twitter.

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