Holding the Line on Remodeling Costs
Older houses can present a prime opportunity for major remodeling jobs that will increase the value of the property. But remodeling, like major repairs, can cost a lot of money. That's why savvy investors approach remodeling with caution: They know how important it is to update the house without spending more than they've budgeted.
Experts in remodeling say the keys to a successful project are planning, multiple bids, and experienced and reliable contractors. What's more, they add, beginners are well advised to start small and cut their teeth on a variety of major house repairs before they tackle a whole-house do-over.
No remodeling project should be begun without an analysis of what the property needs to compete in the marketplace as a rental or resale, a list of potential contractors, two or three bids for each component of the project, a timeline for completion and a careful consideration of how the project will impact the property's cash flow.
Don't be fooled by low bids that may turn out to be unrealistic. While it's reasonable to select the lowest-price contractors for each component of the project if they are able to perform the work, it's not always smart to use those low bids in the budget. A better approach is to budget based on middle or average bids to avoid cost overruns.
The budget also should include a contingency set-aside for job changes, cost increases, unanticipated problems or unexpected delays. The contingency amount typically should be at least 10-15% of the total budget. Use the higher percentage for an older property that may have more surprises behind the walls.
A major remodeling project or multiple smaller projects might create enough work to justify the expense of a construction or job-site manager who represents the property owner's interests. These managers, who often are semi-retired general contractors, typically charge either a flat amount or a negotiable percentage of the budget as their fee. An experienced manager can help to keep the project within the budget and might find additional savings that would offset his or her fee.
One enterprising way to save some money on a remodeling job is to donate existing components of the house to a charity that will remove them from the property and repair and recycle them for other uses at no cost to the property owner. The removal of fixtures, cabinets or appliances that are not suitable for the remodeled property, yet are nonetheless in decent or reusable condition gives the remodeling contractors a jump start and a clean slate on which to do their work.
Some contractors need to finance their own purchases of construction materials that are needed for the job. Financing entails its own costs, which means these contractors might be willing to accept a lower fee for a large job if they will be paid a partial sum ahead of time or receive payment in full as soon as the job is finished. Unlicensed contractors might be a less expensive alternative for certain jobs that don't require the knowledge or skills of a licensed contractor.
Pay close attention to contracts to protect against cost increases during the project. A fixed-price contract locks in the contractor's price regardless of his or her costs while a cost-plus contract places the risk of cost increases on the property owner. Buying materials ahead of time is another way to lock in the cost and protect against the risk of price fluctuations.
Copyright 2006. Marcie Geffner. All rights reserved. No part of this article may be used or reproduced in any manner whatsoever without written permission of the author.
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