Monday August 3rd marked the one-year anniversary of moving back into our home after our renovation project. Daily, I am grateful that the renovation is complete and, particularly during quarantine, we are fully utilizing the extra space. In honor of this special date, I thought I would share some of my experiences and provide some personal insights since many of you are also considering home improvements.
We stumbled upon our house by luck … The house was located on a main street (which was a deal breaker for Al), but we had just completed a walk through of a house in the neighborhood and figured we are here, why not just pop into one more open house? We were a little early or the realtor was a little late … regardless, the doors were locked, so we decided to walk down the long driveway and stumbled upon a massive backyard laden with hundreds of perennials! In that moment, without having to say a word, Al and I looked at each other with excitement. So many of the houses that we were seeing were a lot of house and not a lot of yard. It was important for us to have yard to entertain and a place for our future children to run around. As we toured the house, that excitement grew and grew. Although it didn’t have many of the items on our wish list, we felt the house had a lot of potential and a great location (close to family and a 10 minute drive to my office!).
We moved in May 2014 and from day one we started compiling a list of “It would be nice if …” and “When we do the renovation, I want …” This really allowed us to be very specific when working with the architect and contractor. As an example: including an outlet in a kitchen cabinet for the hand held vacuum to do a quick sweep after dinner every night.
In my personal experience, and in going through the process with other clients, I have found that the more thorough you are in the planning stage, the more likely you are to get an accurate cost of the work and therefore stay on budget.
Here are my top 5 tips for anyone embarking on a renovation project:
- Get 3-5 quotes from contractors: their estimates will show you what renovations cost in your local market.
- Every home project will cost more than you think it will and will take more time than you planned on – acknowledge it, accept it and budget for at least 10% more than a project’s estimated cost to account for unforeseen expenses.
- Stay on budget by utilizing these 3 strategies:
- Put in some sweat equity and do some of the work yourself: I personally could not wait to take a sledge hammer to the red tile kitchen counter tops! And since the kitchen cabinets were in good shape, we opted to reuse them for additional storage in the basement.
- Beware of cost of materials: It’s tempting to want to upgrade appliances, vanities, tile, etc. Stick with a budget and keep a log of what you have spent because, let me tell you, it adds up quickly!
- Reduce the complexity of the project: We opted to keep the existing roof on the part of the house that we didn’t tear down which saved us a significant amount of money.
- Avoid over improving your home based on your neighborhood. Think of the total cost of the renovation as a percent of your home value. As a rule of thumb:
- 5%-15% should be spent on a kitchen
- 3%-7% should be spent on a bathroom
- Utilize app’s such as Houzz (the #1 app for improving and designing your home) and Pinterest (for visual discovery that sparks inspiration). Both applications allow you to create boards to organize your favorite images and save them to make them easy to find. The top image is one I found on Houzz and used as my inspiration for our kitchen pictured below.
Depending on the size of the home improvement or renovation, there are 3 common funding options:
- Home equity line of credit: most lenders allow homeowners to borrow 80 to 90 percent of their home’s value. This limits the amount a homeowner can finance with a HELOC because it is combined with the first mortgage. On a home valued at $800,000, the maximum limit (90 percent) would be $720,000. If a homeowner’s mortgage debt is $600,000, the HELOC could be no greater than $120,000. Fees are lower for a HELOC than a refinance, but the interest rates are adjustable and typically a little higher than rates for a first mortgage. Most HELOC’s have an initial draw period of 5 to 10 years when a homeowner pays interest on the balance, followed by a repayment period of 10 to 15 years, during which homeowners make fully amortized payments.
- Cash out Refinance: For homeowners with good credit or sizable equity in their home who need a big chunk of money, a cash-out refinance might make more sense than a HELOC. The amount homeowners can finance is typically 80 to 85 percent of the home’s value. While a refinance has higher closing costs than a HELOC, the interest rates can be fixed or adjustable and are typically lower than a HELOC. It is important to compare interest rates and think about whether you want to reset the clock on your mortgage.
- Credit card: Many homeowners can take advantage of a no-interest or low-interest promotions. However, in general, credit cards are not a good source of financing because of high interest rates. With this option, it is important to have a plan to repay it. If you can only afford to pay $250/month then that should tell you how much you can spend. Or make sure the timing lines up with a bonus or stock option payout where you could pay it off completely. Lastly, don’t max out the credit card to the limit because that downgrades your credit and will hurt you if you need to apply for other credit.
I hope that you find these tips helpful! There is so much more I could share, so feel free to reach out to schedule a time to chat about it. Al and I learned so much during the process that I felt it was a shame not to put our newly learned skill set to work by flipping a house … let’s just say he was not so keen on the idea!
In summary, taking the time to be thoughtful about what it is you are trying to accomplish and designing a customized plan to bring it to life will make the process less stressful and increase your probability of success – just like with your finances!