Jan. 01, 2025 | CREB

New year, new look: Financial strategies for home renovations

So, whether you’re looking to give your basement a new look or enhance your bathroom, having a solid financial plan for your home renovation project can help you make the best decisions for your home, time and wallet.

Here are some steps to create a financial plan that will work in your favour:

1. Decide what you want

Think about your goal with this project and the details required to make it happen. Be strategic about the order you want things to happen.

To do so, you can write a detailed list of everything you’d like the project to include, and divide the items between wants and needs, so you are aware of the things you’d like to splurge on, and the things you are willing to compromise.

2. Estimate the costs

After writing a detailed list of your needs and wants, you may have a vague idea of how much money you’ll need.

But to be sure, start researching potential costs associated with home renovation projects in your area through cost estimation websites or home renovation forums. Think about the materials, labour, appliances or furniture costs as well (if applicable).

Then, create a detailed plan of the estimated costs so you can communicate this information to your contractors. You can do these through a spreadsheet that includes each portion of the project, and an estimated time for finishing.

During this process, think about the value of your home. If your project costs more than 10 to 15 per cent of your home’s value on a single room, the renovation will not proportionally add to the value of your home.

Tip: Small purchases like paint brushes, sandpaper and hand tools can add to your expenses, so make sure you also budget for the little things and unexpected costs. As a rule of thumb, try to allocate around 10 to 20 per cent of your total budget as a contingency fund. Just in case.

3. Choose a contractor

Unless you’re a DIY pro or work in the home renovation industry, you’ll likely need a contractor to execute your vision in a timely manner and within budget.

To choose the best contractor for your project, you can ask friends and family for referrals, or search online for companies in your area with positive reviews (don’t overlook the negative ones). If you’re looking to renovate your bathroom, look for experts in this area and try to narrow down your search to three.

Once you have your best three options, take the time to call them and set up a meeting to discuss your project (including budget, timeline and preferences) and ask for written estimates, as well as references. Don’t be shy to approach their past clients and ask them about their experience.

After comparing contractors, you can decide which one will be best for your project.

Tip: Be careful with contractors who give you a cheaper bid, as this can open doors to errors that can cost you more money in the long term. Alternatively, you can use competing bids to negotiate with your preferred contractor.

Fun fact: Seasons influence the price of home renovations. If you’re looking to make an indoor renovation, winter is your best bet. On the other hand, although summer is the premier season for outdoor renovations, contractors are in high demand, driving up the renovation costs.

4. Arrange Financing

Now that you know the costs of your renovation, it’s time to think about where the money will come from.

You can take money from your savings or investment accounts, but if those aren’t an option, you can look into home equity loans or a line of credit.

There are many options available, so take the time to research their pros and cons. Make sure you compare the interest rates and terms from different lenders. This way, you’ll be better informed and can save money in the long run.

5. Track your spending

Stay within your budget by creating a system to monitor the costs. You can use a spreadsheet, a budgeting app, or project management software to record every single purchase and expense related to your renovation: labour costs, materials, and yes, even the paint brushes.

Pay attention to your budget and frequently review it to compare the actual expenses against your initial estimates. This will allow you to see which areas cost more than you expected and adjust your spending as necessary.

If you’re over budget, you can see where you could cut costs or reallocate funds by going back to your list of needs versus wants. Sometimes, you have to compromise and that’s okay.

You could also opt to save money on specific things. For example, if there’s any required painting, you can do it yourself and remove that cost from your budget.

In the case that you find yourself under budget, you can use the extra cash for additional upgrades or save it for future projects.

As you embark on your home renovation journey, having a solid budget will support you in having a positive experience while turning your idea into reality.

Sources:

• Budget Dumpster
• RenoWOW

Tagged: home and design | Home Renovations