Renovations take a lot of planning and organization — not just the building part, but the financial aspect as well. With such a large investment that has so many moving parts, you want to make sure your finances don’t go unmanaged.
Determine what you can afford
This is arguably the toughest part of any renovation. Often the gap between what you dream of and what you can afford is pretty substantial. So it’s up to you to determine how much you can realistically afford, and how you’re going to get it. Some people will have enough money saved that they can pay for their renovation up front, while others will need to borrow some of the funds. If you’re planning to finance your renovation, you’ll find there are some great products available that are appropriate for home renos, and because your home is an asset, most financial institutions have a series of options available. Just remember that whatever method of financing you choose, you need to ensure that the total of what you’re going to spend must include the interest you’ll pay over the course of the loan. When you don’t factor in the cost of borrowing, it can throw the total cost of your renovation off by quite a bit.
Create a budget
If you don’t want your renovation to go off the rails, make sure you create a firm budget. Now this isn’t as easy as it sounds. Renovations can vary drastically in price depending on several factors. Make sure you consider the following:
- Wish list for the space
- Condition of the home
- Size of the area being renovated
- Your priorities
- Value of the home and neighbourhood comps
Include a Contingency
No matter how well you plan, it’s always possible — even expected — that something will go wrong. Or at least you’ll be faced with some type of “renovation surprise.” These are the things you inevitably find once you start tearing up floors or bashing through walls. Since there’s no way of knowing about them before they happen, it’s important to always factor in a contingency. In a perfect world you should try to put away an additional 25% of your budget for unexpected issues, but if that’s too much, 15% to 20% should be okay. Just remember, if you can’t afford to fix a few unexpected problems, you can’t afford to renovate.
Tracking your spending throughout the course of the renovation is your key to not accidentally going over budget. I suggest using some renovation software, or just a plain old spreadsheet. Include estimated and actual costs for things like labour, materials, permits and so on. Noting the difference between what you thought you would have to pay and what you’ve actually paid is incredibly important. So every time you agree to something or make a payment, write it down.
Use an App
Make keeping track of your renovation finances a lot easier by using a mobile banking app on your phone. You can manage bill payments and transfer money to your contract or architect from anywhere. When you’re already dealing with the stress of a renovation, following these tips can help make your life a whole lot easier.