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May Q&A: Available now
This month, the Making Sense team answers client questions related to trade policy developments and their impacts on key economic issues.
Anyone who's been through a home renovation project will likely tell you it can be overwhelming—and that it starts before the first hammer is raised.
While home renovation costs depend on several factors that are out of a homeowner's control—including room sizes, materials, supply chains, inflation and project scope—it's possible to reduce the stress that comes with a project like this by following these steps to create a solid, effective home renovation budget.
Setting a smart home renovation budget begins with determining the motivation for undertaking a home renovation project. Are you doing it to make your home more functional, comfortable and enjoyable? If so, you can align your budget with the specific renovations that will support this.
According to the 2022 Remodeling Impact Report (PDF) by the National Association of Realtors, or NAR, a complete kitchen renovation nears the top of the satisfaction list. NAR found that 86% of homeowners polled had an increased sense of enjoyment from their completed kitchen renovation. By contrast, only 54% of those polled said they had an increased sense of enjoyment from their new roof.
You also might be thinking about selling your house and want to increase the value of your home. While these home improvement projects aren't particularly flashy or glamorous, the NAR report found that most homeowners were able to recoup 100% or more of their investment on projects like new roofing and wood flooring when selling their homes. A full bathroom or kitchen renovation, on the other hand, only recouped approximately 63% to 75% of the project's value on resale. While repairs won't guarantee a higher selling price, the goal of a pre-sale home improvement project is to get the home sold without spending more than the net value of the investment.
Once you've decided to undertake a home renovation project, it's time to determine how much of a project you can afford. One good way to estimate your renovation budget is to base it on the total value of your home. No single room renovation should exceed 15% of your home's total value. For example, if your home is worth $400,000, the maximum budget for a bathroom or kitchen renovation should be $60,000.
You can also estimate your budget by square footage. Typically, you can expect to spend at least $10 to $60 per square foot on any renovation. Home renovations and remodels average just under $48,000, with most homes falling roughly between $17,900 and $78,000. This is further influenced by the rooms that will be renovated. Kitchens and bathrooms cost the most, whereas basements, bedrooms and living rooms are the least expensive.
Whatever you decide, experts recommend adding a cushion for the inevitable unexpected or incidental costs that occur on every project. HouseLogic recommends adding a 15% to 20% contingency to your renovation budget.
Now it's time to break out the calculator and spreadsheet to create a project plan, including estimated costs for all labor and materials. Research all the materials and finishes you'd like to include in the project, from flooring to paint to lighting.
Although this project plan won't be the final renovation budget, it can help you be realistic about where you want to splurge and where you want to save. For example, maybe you can repaint rather than replace your existing kitchen cabinets and splurge on upgraded appliances or marble countertops. Just remember that whatever you estimate, you can expect the actual costs to be higher.
To find a contractor, get recommendations for at least three professionals from friends, neighbors and others you trust—ideally, those who've gone through a renovation themselves. Give each contractor your project description and specific product lists, and request an itemized bid.
Also be sure to check references, look at comments on online review sites and ask to see examples of recent work. Here are a few other tips to find good help:
Most people planning a home renovation will have to work out some degree of financing. There are three basic types of loan options:
Establishing your budget—and sticking to it—is essential for any home renovation project. There are several ways to reduce project costs, especially with renovation projects that don't require a building permit from local authorities.
Home improvement projects can be time consuming and costly, but the pinch on your pocketbook can be loosened with smart budgeting. The key is to plan ahead, target key priorities, price materials and services, and weigh the best financing options. With a solid budget in place, your renovation will only make home sweet home that much sweeter.
A home improvement loan could be just what you need. There's no collateral or home equity required—and you get funds within a day.
Normal credit approval applies.
This material is for informational purposes only and is not intended to be an offer, specific investment strategy, recommendation or solicitation to purchase or sell any security or insurance product, and should not be construed as legal, tax or accounting advice. Please consult with your legal or tax advisor regarding the particular facts and circumstances of your situation prior to making any financial decision. While we believe that the information presented is from reliable sources, we do not represent, warrant or guarantee that it is accurate or complete.
Third parties mentioned are not affiliated with First-Citizens Bank & Trust Company.
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