Responsible Renovation

Making ‘cents’ of redesign budgets

BY ALISON BAILIN BATZ

The COVID-19 pandemic made plenty of homeowners think it was time for a redesign. Thus, the demand for home renovation has skyrocketed.

“Unfortunately, the extraordinary demand coupled with labor and supply shortages has also resulted in skyrocketing prices for those looking to remodel,” says Michael Obenauf of Wilde Wealth Management Group.

Given this, here is a look at ways to responsibly renovate without having to liquidate a life’s savings.

Know the limits

According to Obenauf, owners wouldn’t want to spend more than 10% to 15% of their home’s value on a single room.

“Anything over and above this amount likely won’t add enough value to your home to make the expense worth it,” Obenauf says.

For example, if your home is worth $500,000, the maximum you should spend on any room — even big-ticket spaces like the kitchen — is $75,000.

“Completely outside-of-the-box renovations — such as converting an unfi nished basement to a man cave complete with wet bar and movie theater — should technically follow this rule of thumb as well, unless there is disposable income or cash involved,” Obenauf says.

A renovation is not an emergency

Speaking of cash — it is king.

“That being said, one of the biggest mistakes someone can make when paying for costly renovations is to pull cash reserves from emergency and retirement funds,” says Jim Stark of JRS Wealth Management. “As we’ve seen over the past few years, emergencies can come in all forms, and you need those funds to ensure you are comfortable with all bills should the worst happen.”

Often, according to Stark, unforeseen issues arise during a remodel or renovation. This could include the discovery of mold or water damage, broken pipes, rotted wood and even structural issues not up to code. If you have already drained your reserves, there is no additional cash on hand, meaning you could be left with a half-done home for months or even years.

DIY the demo

Even if not handy, there are likely small things that can be done to lower the base cost of some renovations.

“Certainly, this doesn’t mean you need to take a sledgehammer to your walls — especially load-bearing ones — but things like moving furniture or changing out showerheads are fairly easy to do with the help of a friend or two,” says Michael Self of Self Wealth Management.

Self also advises on some other “basics” that can help to cut down on time and labor, including selling old appliances and fi xtures online and paying for an architect’s one-time consultation versus full-scale involvement.

Shop around for talent

“Always tap your network, both for recommendations as well as to see who might have a side hustle willing to help at a reduced cost,” Obenauf says. “Your network can also help determine a good deal versus something too good to be true.”

A good rule of thumb is to tap at least three contractors and get three bids before making any decisions. And don’t just go for the lowest cost. Vet based on references, cost, visuals from past work, and estimated time to complete.

Spread the work love

While it may seem obvious to fi nd a one-stop shop for all the work, often a contractor might actually be subbing some of it and marking up the cost. Therefore, sit with a trusted contractor or even your network and determine who is the best direct fi t for what, meaning perhaps one person for paint and another for design, even a third for technical work.

Get bids for every piece of the puzzle as well as the all-in cost to help make a decision that works for you and your budget.

Jim Stark

JRS Wealth Management

Michael Self

Self Wealth Management

Michael Obenauf

Wilde Wealth Management Group

Rob Huish

Huish Wealth Management

Consider the right loan

“While you should never use a high interest rate, unsecured personal loan or credit card to pay for extensive renovation costs, there are some loans designed to help homeowners,” says Rob Huish of Huish Wealth Management.

Among them, says Huish, is a home equity line of credit, or HELOC.

“This type of loan is underwritten using your home’s current equity,” says Huish, noting that the funds from the loan may be used at your discretion and at diff erent times, for example a portion on a renovation and then later a portion for new furniture or appliances once the renovation is complete.

The interest rate is often signifi cantly less than other options, and with many you only pay interest on the funds you actually draw during the repayment period.

Musts versus wants

Finally, when the costs outweigh your budget, you must make some decisions.

“At the onset of planning, prioritize the most important rooms — those that must get done,” Huish says. “If your kitchen takes priority, but also your entire budget, stick to just that one room for now. It doesn’t mean you can’t do others down the line.”