Summary: Renovation costs and remodeling costs are higher than with new construction or room additions because contractors know that there are often hidden costs in a renovation or remodeling.
Carl, I am really trying to put a budget together for renovation. Is there an example I can use for that?
Thank you, Debra
Here is how to analyze the situation. (From chap 9 in my books)
1. Make up a construction budget ( See House Building Budget).
2. Have the house inspected by a reputable home inspector to find any serious mechanical defects that need attention
3. Determine what upgrades must be done and what improvements you want to make. Consult the inspector, Realtors, Designers (Free in many stores), etc.
4. Make a list, and start getting bids for costs of labor and materials
5. Keep track by filling in the cost estimate spreadsheet just as you would for a new house, except you won’t need some of the categories on the spreadsheet. You will need a few different categories and you can make them up as you see fit. Simply double click on the name of a category you don’t need, highlight it, and type in one you do need.
Note: You will find that construction costs for renovation are higher than with new construction or room additions because subcontractors know that there are often hidden costs in renovation such as finding problems behind walls or making things fit into an existing space. They also know that extra care must be taken when working in an existing house. Don’t worry, though – material costs are the same for either new construction or renovation.
6. Get a real estate appraisal or market analysis from a Realtor as to what the house will be worth when the work is done.
7. Make your decision based on the appraisal or analysis. Will the added cost make the house too expensive for the neighborhood? This will be indicated on the appraisal. If it does, it will be hard to sell and/or you will lose money. The appraisal may actually indicate a value far below your estimated costs, which could be a function of the neighborhood housing values dragging your project down or an indication that you didn't do a careful enough job of estimating.
8. Note: If you are renovating (remodeling) for resale #7 is critical
9. If you do decide to go ahead, follow the same steps for general contracting as you would in new construction as far as obtaining financing, scheduling subcontractors, etc.
Even with small remodeling jobs, it makes sense to act as your own general contractor. After all, why pay a remodeling general contractor to make the same phone calls you can make to the plumber, electrician, tile contractor, cabinet shop, painters, flooring contractor, home center, and so on.
For example, say you’re planning a new kitchen. Make a list of what you want done. Find corresponding subcontractors for each type of job and get bids from them as well as a list of materials they may need you to supply. Enter all those costs on a spreadsheet and see what it costs with you being the general contractor.
Next get a bid for the whole job from a remodeling general contractor, where all you have to do is write the check. See which way is cheaper. Will your homework and scheduling efforts be worth it? I think you'll find out the answer is yes! If not, get bids and references from at least three remodeling general contractors and make your decision.
Read my tip on Increasing Home Value.
Good Luck, Carl Heldmann