Couple working on home budget

New Build or Renovation - Eleven Tips For Determining A Budget

Establishing a budget can be a daunting task, but it is a critical piece of information for you and your contractor. Understanding your budget parameters is just as important as determining the scope of your project.

Key Takeaways

You’ve thought about it for a long time and now you are ready to take the plunge and dive into your new build or renovation of your home or cottage. Now the big question… “How do I budget for this project?” Budgeting for a project like this can feel daunting. But it doesn’t have to be. This article is designed to help you understand your budget parameters.

It's important to understand the benefit of starting with an actual design when requesting a quote for a new build or renovation. There is a misconception that a budget can be established using a cost per square foot model. There are too many variables that can move the scale, including size, quality and type of finishings, to name a few. Working with a design-build partner is the best step to establishing an accurate budget from the onset.

Let's walk through some steps that will help you drill down a working budget for your design, renovation or build project.

Let's walk through some steps that will help you drill down to a working budget for your design, renovation or build project.

1. Design-Build Contractor

It might be intuitive to design first and hire a contractor after. However, it is more beneficial to bring the contractor into the design phase. Hiring a design-build contractor will achieve this. This will help you evaluate and develop costs from conceptual drawings through all the stages of the design.

Select a design-build contractor like you would hire an employee. Interview them to assess experience and skills. Research their reputation and review their previous projects. Determine if they are someone you can see yourself working with. Clarify any ‘gray areas’ in terms of what they will provide. This will help avoid misunderstandings during the project.

For tips on how to interview and select a design-build contractor, download our guide How To Hire a Design, Renovate, & Build Contractor

Another benefit to bringing a contractor into the design phase is their knowledge of building materials and performance. Builders can advise what is doable, identify restrictions, and offer suggestions and solutions for potential issues.

The benefit of using a company that handles the design and build aspect of the project, is both the contractor and designer will work together to provide an accurate quote upfront. You get the best of both areas of expertise at the same time.

2. Identify The Project

Whether it is a new build, an addition to your existing home, or a remodel, each project has its own method for budgeting. New construction may be more likely to follow a cost per square foot model. However, this cost model comes with a warning.

A common mistake is estimating without considering the shape, performance, or quality of finishings. For example, a square foot estimate may not account for non-standard ceiling height, over sized windows, or upgraded finishings.

Today's homes can have vast differences in design, type of foundation, elevation, wall assembly, etc. It is almost impossible to assign a straight up cost per square foot with any degree of accuracy.

A remodel is more likely to be budgeted based on the overall project. Unique scenarios, such as renovating a historic home, may begin with a budget, but veer off track as walls, ceilings and floors are opened up.

The best approach for establishing a budget is to work with a design-build partner. This integrated approach will streamline the process between the designer, contractor and tradespeople. They will work as a team to bring one central vision to life.

Don't forget to consider costs outside of the actual construction. There might be legal fees, cost of land and taxes, permits, excavation, landscaping, decorating, financing, rental and living expenses - the list goes on. Identify all of your potential costs upfront to ensure your budget does not run out before your project is completed.

3. Think Ahead

Ensure you prioritize components of the project that are the most difficult to change down the road. You might be able to scale back on aesthetic finishes that can be upgraded in the future. This will help ensure you can afford your desired square footage or structural changes.

You should never cut corners on components that affect health, safety and performance. A well-insulated and well-constructed home made with long-lasting materials will hold or increase in value over time.

Operational and maintenance costs will also be lower with an energy efficient structure and design.

Remember- interior finishes are much easier and more affordable to change over time. However, a safe and healthy high-performance home is built to last, which will never lose appeal for resale value.

4. Financing

Perhaps the most important element of preparing for a build or renovation is determining how you will finance it. Regardless of the means, the budget of your renovation will need to fit within the limit of your approved or available funds.

Once you have established the amount you can afford, be sure to include a minimum of 10 percent, but more comfortably 20 percent, for unexpected expenses. By setting aside a percentage of budget before beginning, you know you will have funds available if there is a surprise along the way, or you decide to add or upgrade something in the middle of the project.

You can gradually reduce the contingency as you go through the project phases, as well. Once you have successfully navigated through different stages- demolition, for example - you may reduce your contingency fund from 20 percent down to 15 percent (if there weren't any hidden surprises). You can continue to do this as the project makes its way through completion. You can save the unspent money with the satisfaction of knowing you came in under budget or treat yourself to a special high-end finishing before wrapping up the project.

5. Consider The Value Added to Your Lifestyle

It can be difficult for a homeowner to come up with a starting point of how much to spend on a home build or renovation. It's important to look at the overall value of an enhanced lifestyle, versus strictly from a resale point of view. Whether it's loving your space more, feeling calmer or more centered in your environment, improving functionality or efficiency, or entertaining friends and family with pride, there are many intangibles worth investing in that can't be calculated on paper.

Being guided by an experienced design build contractor early on in the process will help keep you on track with your investment decision. They can help you establish a list of priorities and guide you through a project that is realistic for your budget.

6. Prioritize Remodeling Needs

It is much easier to stay on budget if you establish a list of exactly what you want. Create a list that includes everything you would like to include in the project, then separate those items into wants and needs. You may want the latest technology or design trend, but if budget does not allow, these items should be moved from your "need" list, over to your "want" list.

If you simply cannot live without something your budget cannot afford, perhaps delaying the project until you have more financial flexibility makes sense.

Also consider the order in which to do things. If planning granite counter tops, ensure you are happy with the cabinetry, as well. It is not ideal planning to upgrade one component of a room if you know you will be making changes to another in the near future.

Recognize that once your space starts looking great with a new renovation, you may want to continue the trend throughout other areas of your home. Try to envision what that might look like, so you can account for any extras during the planning phase.

You might find yourself feeling a little defeated if your upgraded designer kitchen transitions into a dated living room. It might be better to hold off until you know your space can be remodeled to your satisfaction versus feeling less than happy with a space that now looks only half completed.

7. Plan Your Splurges

Allow for a few splurges that you will love for years to come. If you are big on entertaining, budget for an over sized counter and designer backsplash. It will make the time you spend in the space all the more enjoyable for years to come.

8. Working With Your Contractor to Select Finishings

With a design-build partner, you'll work through a process that calculates the cost and amount of different materials needed. They will also advise you on different levels of finishings available and guide you on selecting the optimal choices for your vision and budget. They will be privy to the most current products in the industry, which you may not otherwise know about.

Working with an established itemized list will allow your contractor to order materials as soon as possible, which will help avoid the stress of finding out an important item is on back order. This will help keep your project running on time and on budget.

Having more time may also allow your contractor the ability to search for special deals or incentives on your selected products. The more time, the better. Have your contractor/designer help you prepare a detailed set of drawings. Make all of your decisions before starting the project. Stick to the plan to stay on track.

9. Keep Track

Build a spreadsheet that includes each portion of the project and the estimated cost for labour and materials. Monitor costs at every stage of the project. Track all the expenses during construction and renovations to ensure that the established budget is respected. This is where beginning with an integrated design process proves to be invaluable.

10. Use What You Already Have

Sometimes you can save money by using or re-purposing what you already have. Your home might have hidden assets that can save you thousands. An example is an existing hardwood floor. Old hardwood is often high quality and can be refinished to your liking. The same goes for existing trim and doors. If they are in good shape, they can be refinished instead of buying new.

Another way to save on cost is considering layout. For instance, homeowners sometimes assume they need extra floor space, when rearranging interior walls or installing larger windows might be less costly and entirely satisfactory.

11. Capital Versus Operational Costs

Sometimes investing a little more money upfront can reduce wasted resources down the line. For example, water-conserving fixtures can reduce water waste over time, benefiting both the environment and your wallet. Energy-efficient lighting and high-efficiency water heaters can also help reduce waste in the long-term. Ask your contractor about the latest technologies that you might be able to incorporate into your new build or renovation.  

Summary Checklist to Help Establish Your Budget and Keep It On Track

  • Bring your contractor in before the design phase. Better yet, hire a company that offers both designing and building, so you can work with experts in each field during the planning stage.
  • Identify the type and scope of project.
  • Think ahead to what you should invest in to optimize your budget. Structural changes are priority; interior finishes can be changed down the road with a lot more ease and versatility versus installing new windows and walls.
  • Lock in your financing. Understand how much you can afford and allow a 20 percent buffer for hidden deficiencies and other surprises.
  • Make a list that outlines which items are "needs" and which items are "wants." Start cutting from the "wants" list until you are within your allotted budget.
  • If going through the time, trouble and expense of a new build, renovation, or remodel, plan on a few splurges. You want to love your space and allowing yourself to indulge in an upgraded back splash and pot filler could fill you with joy every time you walk into the room. Budget for a few things that will make you smile every day.
  • Decisions, decisions.....make them. Decide on your trim, finishes, etc., before starting the project. Establishing these items upfront will help avoid added expense and disappointment during the project.
  • Track your estimated budget versus your actual budget at every stage throughout the project. Rein things in if they are starting to veer away from the plan, with the exception of your contingency fund for unexpected surprises or "new" wants, once the project is underway.
  • Reduce, reuse, recycle - some of your existing finishes might be transformed into something beautiful with the right vision and expertise. That old hardwood can be refinished into the floor of your dreams and save you thousands in the process.
  • Don’t end up with two price tags. In the long run, it's worth investing a little more upfront so you don’t waste money down the road. For example, purchasing energy efficient windows can stop you from wasting heat and air conditioning for years to come.

Learn more...

If you would like to learn more about the design, renovate, and build process from experienced professionals, request a consultation with Spotlight Home and Lifestyle today.