Get the right remodel with your budget
No matter how great your need for a remodel or what your financial situation is, budgeting for a remodel can be a confusing manner for a homeowner. Just as homeowners with modest means want the most value for their money, millionaires want to make sure they’re getting what they need for the right price, too. Because no homeowner has an unlimited amount of money to spend on remodeling, knowing exactly how much you have to spend and what your plans will cost will save you from potential heartbreak or unnecessary debt. The best plan is to talk with your financer to determine your bottom line and don’t even think about major remodeling if you plan to move within 5 years because you’ll end up losing money on the investment. Once you set your bottom line don’t go over it, even for something you really truly want, because it could turn your dream home into a nightmare. Understanding how to set a budget for a remodel can make the rest of the process go smoothly.
How to determine your remodeling budget
The first step in any remodel is to determine your actual budget, which is the cold hard number you can afford to spend. This involves taking a good, honest look at your finances, debts and monthly expenses as well as available loans and possible equity. Do you have enough money in savings to pay for the remodel in cash (and maybe get a discount)? Can you get a home improvement loan with a great interest rate? Is a second mortgage the best option for you? Only you can answer these questions, and speaking with a lender can help. Keep in mind that borrowing through a low-interest loan or mortgage might be better than taking money out of a high-interest yielding account, especially when tax time comes.
Combine all sources of funding for the remodel to determine your bottom line, which should not be more than about 20% of the value of your home for any one remodel. Then, take 10-15% of that number and set it aside for contingencies, or unexpected situations or upgrades. A remodel will very rarely come in under budget, but very frequently comes in over budget due to unforeseen circumstances and the amount you set aside will cover this. Be aware that unless you have lots of cash on hand, budgeting for a remodel may require you to postpone certain luxuries, such as your yearly vacation or upgrading your car. If these concessions seem too harsh it may be a sign you’re not ready to remodel.
How to make the most use out of your remodeling budget
Now that you’ve settled on a comfortable and affordable number you can start planning your remodel and learning actual costs of the features and products you want. It’s usually beneficial to talk with a remodeling contractor or designer about your goals and plans because he or she will have insight about the best way to take advantage of the space you have. Labor is going to eat up a significant portion of your budget, so just because you might have $50,000 to spend on a kitchen remodel doesn’t mean professional grade appliances are within the budget; as much as 30% of your budget will go to labor, leaving you with only 70% of your bottom line (after contingencies) to choose materials and products.
A key thing to keep in mind when planning a remodel within your budget is to understand what you really want to get out of your remodel. For example, if you’re planning a kitchen remodel and you’ve always wanted a marble countertop island maybe you will compromise with lower-budget tile flooring. After all, you want to be truly happy with the final product and if you have to forgo the one aspect you wanted more than anything it just won’t be as good as it could have been, and for the money you should expect to be completely satisfied.
Track your spending
It’s a smart idea to track your spending as you progress with the remodel to ensure the actual costs are in line with the budgeted costs. This way, if you have to make changes halfway through you’ll still be able to and still stay within your means. Similarly, if your actual costs are right in line with what you expected and you still have your contingency budget you might consider upgrading a portion of the remodel or not postponing that trip.