How to budget for a home renovation

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In this crazy housing market, more and more buyers are seriously considering repairing or settling for properties that may not have everything they want or need from the day they move in. — not to mention those who waive inspections and other contingencies in their contracts, which could lead to even more surprises on closing day.

If you’ve recently purchased a home that needs attention, the crucial first step is knowing exactly what work needs to be done (vs. what would just be nice to have) and how much those must-haves will cost.

When budgeting, it’s helpful to think of these projects in three broad categories, according to Liz Lovery, an interior design and DIY social media influencer who took part in a series of videos produced by Bankrate. The categories she identified fall more or less in order of necessity: structural renovations, functional/systemic renovations and interior renovations.

Here’s what you need to know about each home improvement category and how to plan related projects.

Structural renovations

You don’t have a home without a structure, which is why this is category number one. This includes things like the foundations, walls, floors, roof, windows and doors, all of which need to be in good condition to ensure that your habitat is habitable and remains safe to live in for the long term.

You should also think about why you’re doing the work, says Ari Rasekh, co-founder of Manor.care, an app that helps homeowners track their property’s maintenance needs.

“Are we talking about repairs, routine maintenance or home improvement?” he says. Repairs come first. “Routine maintenance is about avoiding a repair, and home improvement is inherently more optional. When I look at prioritization, I look at these factors.

While some structural projects may be more of a wish list item, such as adding an extension to your home, the majority of them fall into the category of vital repairs: jobs that tend to be more necessary than discretionary, such as dealing with a leaky roof or a badly cracked foundation.

There is enormous variability, in terms of price, with structuring projects. For example, replacing a roof typically costs between $5,601 and $11,729, while replacing windows costs between $175 and $1,800 each, according to Angi, the contractor finder service site. Of course, costs will depend on the size and location of your home, the materials you choose, and local labor costs.

You should always budget for a little extra. Since the start of the pandemic, shortages and supply chain issues have led to rapidly rising building material costs, with drywall costing between $12 and $20 per panel, according to HomeAdvisor powered by Angi, an increase up nearly 16% from 2021 prices, according to the National Association of Home Builders (NAHB).

Rasekh says regular maintenance can help owners avoid more serious and costly sudden repairs. He advises his clients to allow between 1 and 4% of the value of their property for maintenance each year.

Functional or systemic renovations

This second largest category includes the systems that keep your home running smoothly: the plumbing; heating, cooling and ventilation (HVAC); Electrical wiring; and other necessities.

Repairs in this category may still be urgent. If your toilet is spraying water all over your bathroom, for example, you’ll want to fix that problem as soon as possible. Even small device updates can be extremely important.

“There are more than 25,000 fires in the United States each year where smoke detectors were present and should have worked but failed to do so,” Rasekh says.

Again, costs for systemic repairs can vary greatly depending on location, materials, and other factors relating to your home.

A new HVAC system costs between $5,000 and $12,500, while re-plumbing a home (replacing pipes or running new ones) averages between $2,280 and $5,120, depending on size. of the property. Much of that price goes toward labor.

It can be difficult to anticipate when one of your home’s vital systems will need repair, which is why Rasekh says it’s important to always have emergency funds in the bank.

“Setting aside the contingencies for these types of scenarios and being on top of your preventative maintenance can really save you money in the long run,” he says.

Interior renovations

By nature, interior renovations are the most discretionary, but they are also often the most exciting for new homeowners. Part functional and part decorative, they include things like new paint, appliances, hardware, window treatments, furniture, and light fixtures—all the lifelong design elements that make a home a home.

This is also the category where cost can be most variable, as homeowners have an almost endless range of styles, materials and finishes in different qualities. You can spend as little as $195 for a new tub or as much as $500,000 for a chandelier.

Of course, interior renovations often include improvements in structural or systemic categories, which can make superficial home improvements or remodeling projects more expensive. For example, a major kitchen remodel (changing both size/layout and room features) costs on average between $25,000 and $40,000, while a similar bathroom remodel complete costs between $10,000 and $25,000. Although it’s discretionary, you have to be disciplined with this category because it’s so easy to overspend, especially when stylistic changes start to involve structural changes.

In general, interior renovations are the lowest priority. A popcorn ceiling or peeling paint may be boring to look at, but it won’t force you out of your home like a wall that has lost its structural integrity.

Other tips

Home improvement is a massive undertaking that almost always takes longer and costs more than homeowners expect.

Rasekh says it’s a good idea to set aside 20-30% of your total project cost for contingencies, up to 30% on top of the original project cost estimate.

He adds that it’s important to get multiple quotes, especially if you’re preparing for a major renovation. “Go to a few different contractors, you’ll learn from them, not only for price comparison, but also what factors to consider,” Rasekh says. “Make sure you don’t overspend yourself financially.”

Home Renovation Budgeting Basics

Home renovations are big business and can involve many twists and turns, quick decisions and unpleasant surprises. Whether you choose to divide your budget into three compartments – structural, functional and internal – or use another approach, the important thing is to plan, prioritize and anticipate. Organize your projects early and allocate your expenses carefully. And stick to your budget, making sure to set aside money for the problems that invariably arise.

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