So you are thinking about a major renovation of your home. You’ve been stuck in the house since the pandemic – and you plan to stay a while longer. So why not invest some money to make it look nicer?
If you’ve never remodeled your home before, getting through the process can be a nightmare. I’ve been through four projects and none of them have been enjoyable. But after the first two, I finally got down to the game some general contractors play in order to get as much money as possible from homeowners.
Here’s what I’ve learned from all of my painful, stressful, and costly experiences:
1. It will cost more than expected.
Competition is fierce, so a contractor could offer an attractive price first to outperform all other offers. Their goal is to get you to sign the contract. Once locked in, they can sell you with add-ons.
If you’re already $ 100,000 down and have been doing bathroom and kitchen chores for three months, you probably won’t be brash about a $ 3,000 recessed lighting project. And with the walls open now, what is another $ 2,000 for an electric car charger?
To protect your sanity, expect everything to cost 50% more and take 50% longer.
As your contractor gets further into the project, they may point out “unforeseen” problems that require more work. The additional fees may be legitimate, but some unscrupulous contractors often find excuses to raise the price.
Do not rush into anything. Do your research, receive multiple bids, and be ready to walk away. When drafting the contract, be as detailed as possible in terms of costs, time, materials, and labor.
2. It is taking longer than expected.
Two classic lines you might hear from your contractor if they’re on time: “This project is costing me money.” “I work practically for free.”
The best way to ensure that your contractor is honest on the timing is to include a late fee agreement. Think of a conservative end date that both of you will be happy with.
The clause should state that a credit or price reduction will be made for each day the contractor is late. Not only does this protect your finances, but it also significantly reduces the stress you will ultimately experience.
3. Don’t let emotions bother you.
Emotions are a homeowner’s worst enemy. The more emotional you are with your contractor, the more they know that they can take advantage of you.
Let’s say you’ve just bought your dream home. “We love it so much and it’s in the perfect location,” tell your contractor. They also allow you to outbid by $ 65,000. That is much. In such a scenario, your contractor might be thinking, what’s the harm in charging an additional $ 10,000 with the type of money this couple has?
Keep things strictly business and leave your feelings at the door.
4. Spend as much as your property value.
A few years ago my wife and I downgraded to a cheaper house that needed some work.
One of the improvements was the addition of a deck in our master bedroom. We initially had problems with which sliding doors to choose and at what price range. The inferior doors are $ 8,000, the middle one is $ 15,000, and the high quality is $ 25,000.
Before: Build a deck in the master bedroom
To make sure we were spending within the home value, we toured a few open-plan homes in the neighborhood, especially those that had been renovated for a year.
After: A 300 square foot west facing deck for on-site protection
We came across a three bedroom, three bathroom home measuring 1,800 square feet. The property had medium sized sliding doors that led to the back yard. Since the list price was comparable to the value of our home, we knew which sliding doors to use and how much to spend.
5. Always think in terms of percentage.
Your renovation budget should be based on the percentage value of your property. If you end up spending too much, you may never be able to recoup the cost, let alone make a return.
For example, if your home is worth $ 1 million, I highly recommend limiting the budget to no more than 10% of your home value ($ 100,000).
For those easily stressed out by the renovation process, buying one that has already been converted may be a better option.
The final elements are timing and purpose. If economic conditions are right, the best time to list your property is once the renovations are complete. Then your home looks and smells best.
If you are simply renovating your home forever to enjoy it, none of it really matters (until it does).
6. Watch out for price discrimination by district.
While input and labor costs are largely independent of the value of your home, some contractors may charge higher fees depending on where you live.
One contractor I once hired admitted that if they ever did a project in the Pacific Heights neighborhood, they would add “100% more” to their price – just because it’s in one of the most expensive areas of San Francisco . “Rich homeowners are more likely to accept higher fees because their homes have larger price buffers to absorb renovation costs,” he told me.
For example, a home priced at $ 1,500 per square foot has a much higher renovation buffer than a home that sells for $ 500 per square foot.
Always carefully go through the contract details and look for unnecessary features that your contractor may have added to increase the price. Once the project starts, keep an eye on all receipts and invoices to make sure you have been billed for the correct amount.
7. Lower your expectations.
Regardless of how optimistic you are about remodeling your home, you are likely to have a miserable experience.
To protect your sanity, expect everything to cost 50% more and take 50% longer – especially during a pandemic when your home remodeling is booming. If the project exceeds your expectations, you will feel great. If not, your expectations have been set.
For those who are easily stressed by the process, buying a home that has already been converted may be a better option. The older (and richer) you get, the less time and money you’ll want to spend on renovations. Instead of building sweat capital, you might consider building passive real estate capital through crowdfunding.
Good luck with your renovation project. On the other hand, may you come out with all your relationships intact and the home of your dreams!
Sam Doge worked in investment banking for 13 years before founding Financial Samurai, a personal finance website. He has been featured in Forbes, the Wall Street Journal, the Chicago Tribune, and The LATimes. Sign up for his free weekly newsletter here.
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