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Champagne Dreams on a Beer Budget

We’ve all heard the saying “measure twice, cut once”, when it comes to building, but “plan and verify, save money” is more like it when it comes to budgeting for remodels.

Ideally, you want to know how much your project will cost well before you start securing bids.  Unfortunately, the remodeling industry lacks transparency. For far too many homeowners, the true costs for their project only become clear when you’re already part way through the project, or worst, the end of it.

Budgeting for your remodel properly involves budgeting realistically.  So, remember to keep the end goal in mind…plan a remodel you are happy with that you can actually afford to complete, not just start.

Budgeting realistically means thinking of your remodeling budget like this simple equation:

Remodeling Budget = Soft Costs + Hard Costs + Contingency

Soft costs are those costs associated with non-physical expenses such as architectural and engineering fees, as well as permitting.

Hard costs are costs associated with actual construction, like materials for plumbing, framing, or trim as well as labor costs for completing those projects.

A contingency is a predetermined amount or percentage of your budget allocated for necessary, unpredictable expenses such as an undetected water leak.

To budget for soft costs use the 20% to 29% Rule. For every $10,000 in hard costs, budget $2,000 to $2,900 in soft costs.

This equation will help reality check your remodel.

Here are some ballpark ranges for what soft costs should be as a percentage of your total construction costs:

Architect and/or Designer: 10-15%

Consultants: 6-8%

• Structural
• Surveyor
• Soils
• Geo-Technical
• HVAC
• Title 24 Energy

Permits and Entitlements: 4-6%

• Planning / Zoning
• Building & Safety
• Public Works

Total: 20-29% of your construction budget.

If you feel like you’re at risk of a ballooning budget, take these four steps:

Prioritize your wish list. Start with a bare minimum of what must be done and what you cannot live without (i.e. your “must-haves”), then prioritize them. If there is budget left over, add in some of your “nice-to-have” items in order of priority. Be mindful and don’t let yourself get caught up in the romance of remodeling! You do not get champagne results on a beer budget.

Factor in contingencies. Things may not go according to plan.  So, plan for a few additional weeks of labor and a 10-15% reserve to handle unforeseen circumstances, like an undetected water leak.

Stop yourself from saying red-flag phrases. Saying things like “While we’re at it…” and “Since they have to be up there anyway…” open the door to adding work–and therefore time and expense–to a project. So, “zip it”.

Check local real estate market norms.  You don’t want to over improve for the neighborhood.  If you do, you may be stuck with a house you want to sell and nobody wants to buy, unless the price is deeply discounted.  Stick with popular remodeling projects like kitchen and bath remodels, master suite or two-story additions.  The Cost vs. Value Report (www.costvsvalue.com) is a great site for comparing the average cost of popular remodeling projects with the value those projects retain at resale in many U.S. markets.

What I like about this site is that it describes the projects so you can see the difference between a mid-range project and an upscale kitchen project.

Assuming you don’t have unlimited funds and don’t want to end up with a half-finished remodel or under a mountain of debt, it’s crucial to be realistic and tactical about what you can afford from the start.