How to Set a Renovation Budget

One of the fastest ways to increase the value of your home or to attract buyers is a home renovation. That’s the easy part, the hard part is setting a budget for your renovation and not going over it.  As the premier real estate agent for Niagara on the Lake, here are some tips on how to set a proper renovation budget and stick to it.

Understanding Percentages

A quick way to estimate and set a rough budget is to look at your renovation as a percentage of the total value of your home.

For example:

A kitchen generally accounts for anywhere from 10% to 15% of your overall property value.  If your home is worth $300 000, then your renovation budget should be below $45 000.

Here’s the Deal:

Kitchen renovations generally offer one of the lowest returns on your overall investment.  For every dollar that you spend your average return rate is 50 cents.  The highest rate of return on a renovation is a mid-range bathroom remodel.

Loan Options

Once you have made up your mind on the type of renovation you want and have estimated what it is going to cost, the next step is looking at various loan options.

  • Line of Credit – This can be a great way to pay for renovations and is quickly accessible. Talk to your bank about their interest rates on a line of credit and if you qualify.
  • Home Equity Loan – Often called a second mortgage. A home equity loan allows you to borrow a certain percentage of your home’s overall value.
  • Refinancing – Depending upon your current interest rate, you may want to think about refinancing your mortgage at either a lower rate or for a longer term allowing you to save for your renovation.

Regardless of what type of financing you choose, plan to give yourself a 10 – 15% cushion on your original estimate, this will allow for cost overruns or unforeseen expenses.

Shop Around

Take the time to talk to a wide range of contractors and make sure to get quotes. Be very specific about what you want done in your renovation and make sure that all the details, including the type of materials that are to be used are included in your quote.   Make sure to ask a lot of questions about the overall timeframe for the job, what type of insurance they provide and references from past clients.

Stick to the Game Plan

Although it may be tempting to add small remodeling jobs onto the planned renovation, try to refrain.  The fastest way to overspend on your renovation budget is by changing your mind or the initial renovation part way through.  If possible, stick to the original plan and quote.

A renovation can breathe new life into any room in your home.  It is also one of the most effective ways to increase your home’s value.  By setting a renovation budget and sticking to it, you should be able to enjoy your new home without breaking the bank.  If you would like more information about setting a renovation budget or how to take advantage of the red-hot summer real estate market here in Niagara, please call me today.