Financially Fit in 5

5-Minute articles to make your finances
simple, easy, and care-free.

Avoiding The Money Pit

Those of a certain age will remember the movie The Money Pit starring Tom Hanks and Shelly Long. It was a comedic look at the trials and tribulations of renovating a house. And with Spring fast approaching, some of you might be considering home repair and renovation projects.

There are key considerations when planning a home renovation which include knowing how long you plan to live in the house, how much you want to spend, and how you will pay for the renovation. Once you have these main considerations in order, here are a few personal finance tips to help you make it a smoother process.

It’s prudent have a budget and stick to it. Your budget should include the cost of labor, tools, equipment, materials, permits, and clean up. One of the biggest budget busters is “scope creep,” which is the unintended growth of the project. (Can we do this too?). It is recommended that you set aside 20% of the overall budget to handle the unexpected. If you are looking for a cost guide on what different types of projects might cost, Pillar To Post has a good listing. (It’s a PDF, so an internet search of “Pillar to Post cost guide” will bring you to the correct site.)

Not sure if a renovation project will be worth it when you sell your house? Remodeling Magazine has a Cost versus Value report that looks at the return on the cost of renovations.**
The renovations that return the most for your investment are improvements such as a new steel entry door, a garage door replacement, and window replacements. A minor kitchen remodel will return an average of 80% of the cost while a bathroom remodel will return an average of 75%. The renovation that will generate the least return for your investment – a home office renovation. For that you would get a return of 48.9% so you lose 50% of the money you spend.

For some tips on finding a contractor, I reached out to Anne Thornton, President of MSI Plumbing and Remodeling.  Anne shared these two tips:

– Always do a thorough review of your contractor. Ask who owns the business, how long the business has been in operation, and is the business licensed in the State of operation and what licenses do they hold. (In New Jersey all contractors must be licensed as a Home Improvement Contractor.) Make sure the firm carries worker’s compensation and liability insurance, and the contractor should be willing to provide the certificates of insurance.

– Always require a written contract. It’s a good rule of thumb to have the details and scope of the job, a payment schedule, written warranty, project start and end date, and copy of insurance. You should expect a copy of the contract with both your signature and the contractor’s signature.

One final thing to add is that you should never make the final payment until every last thing is completed. The end result of your planning efforts should help make your renovation a smooth, successful process.

Hope you enjoyed this edition of Financially Fit in Five.