A year ago, the ceiling in Fiyel Levent’s bathroom caved in, which was just the beginning of the problems with her apartment’s unfortunate commode.
A giant claw-foot tub happens to sit in the middle of the tiny five-by-seven foot space, making a tight squeeze all that much tighter. To make matters worse, it’s the couple’s only bathroom. “We’re going to gut it,” says Levent, who lives in a two-bedroom apartment in Queens. “It’s very impractical. The tub takes up the entire room.”
But, as she and her husband have discovered, tackling a home improvement project is a major endeavor, and renovating even a small space can come with an oversize price tag. Figuring out where to begin can be as overwhelming as the work itself. Any homeowner who’s planning to take on that avocado green kitchen should probably invest in a good calculator first.
But, when considering renovations, which should you tackle first, and how do you know if you have enough money in the coffers to tackle it? “Bad wallpaper is not an emergency,” says Ellen Derrick, a certified financial planner™ with LearnVest Planning Services. “Saving up and paying cash for the work needed is the more reasonable route—and this means saving up for the project outside of your emergency fund.”
Before you start picking out Kohler appliances, take a cold, hard look at your latest bank statements and your monthly take-home pay, and figure out how long it will take you to save enough to pay off the project outright, advises Derrick—and that's just what Levent and her husband ultimately did. If you’re embarking on a major remodel that will require financing, consider a home equity loan or line of credit. But be sure that you can afford the increased monthly payments before you sign on the dotted line—and make sure the investment will add value to your home.
Show Me the Money
It’s been a year since her ceiling caved in, and still Levent hasn’t started the renovation. Instead, she and her husband have been saving money and drawing up plans. They estimate the project will cost $5,000, which is significantly less than the national average for remodeling a bathroom ($11,300, according to a Houzz.com survey.) However, she and her husband, Basar Girt, are both architects. The couple designed their new bathroom and plan to do much of the work, which cut down costs considerably. Rather than use high-end materials, the couple also plans to reduce costs by using IKEA finishings.
“IKEA is very helpful in the DIY world,” says Levent.
Costs can vary dramatically depending on where you live. A new kitchen in New York City could set you back almost $25,000. But in Birmingham, Ala., that same granite and stainless steel wonder will cost a cool $12,000. Be sure to get at least three bids for work as estimates vary widely. Zillow Digs has a tool to help you figure out if you are paying a fair price for that Ipe wood deck. And HomeAdvisor.com provides cost averages for projects big and small, so you can guess how much that new rec room will cost before you start working on it.
Prepare for the Worst
When Ian and Samantha Camera added an $84,000 addition to their 1,500-square-foot cape-style home in western Massachusetts, they did not factor in the possibility that the drainage ditch that runs in front of their house could be protected wetlands.
“It was ironic because the town dredges it with a backhoe,” says Ian Camera.
Their experience is not at all uncommon. Home improvement projects are prone to budget blowouts and unforeseen complications. That perfect Italian tile can add serious digits to a budget, and so can a problem with the electrical wiring. When you open up a wall, there is no telling what you’ll find. So set aside part of your labor budget for contingencies. Or, be prepared to trade in that maple flooring for laminate, if necessary.
For the Cameras, that not-so-innocent drainage ditch added $2,850 to their bill because they had to hire an engineer to write a proposal that the town preservation committee would approve. With no more money to spend, they had to cut elsewhere. So rather than skin the two-story addition with cement board, the couple chose vinyl siding and expensive flooring was swapped for a mix of bamboo and oak.
More Than Just a Pretty Face
People take on home improvement projects for two reasons: To improve the quality of their home and to improve its value. Oftentimes those desires overlap, but sometimes they don’t. When taking on a major improvement project, consider how much the work will improve the home’s value. Bathrooms and kitchens can translate to higher resale values, whereas a new pool in the backyard is unlikely to fetch much on the market.
“The number-one thing to consider is whether the project actually improves the market value of your home or whether it is simply to make the home more enjoyable for you, regardless of market value,” says Derrick. “If putting in a $30,000 kitchen will actually improve the home's competitiveness with other comparable homes, then it may be a perfectly reasonable amount to spend.”
For the Cameras, adding a living room, master bathroom and garage to their tiny living quarters certainly improved the home’s value. Before they began the $84,000 project, their home was assessed at $291,000. Now, the couple estimates it is worth $380,000, which is $5,000 more than the cost of the work.
“Now if we want to buy something as large as this house, we can. And if we want to downsize when we’re older, we can do that too,” says Ian Camera. “We’re in a different position relative to the market than we were before we remodeled.”
No Time Like the Present
If you are considering adding a new deck for the gas grill, now may be a good time to consider it. With home prices on the rise again, investing in improvements is paying off.
Homeowners could recoup more than 77 percent of the cost of a new wood deck in 2012–13, according to Remodeling magazine's annual Cost vs. Value Report 2013. That’s a big bump from the 2011–12 survey when a homeowner would have only gotten back 70 percent of the cost for the same project.
However, if you’re not planning to sell your home any time soon, it may be a long time before you see a return on the investment, unless you consider an Oktoberfest barbecue on your new deck payoff enough.