Take control of your renovation project by lining up your financial ducks…

Take Control

One of the biggest concerns people have when considering a renovation is budget blowouts and losing control of their project.


Understanding your funding commitments and your renovation cash flow is a crucial part of gaining and staying in control of your project, both financially and emotionally.

Knowing what funds need to be available and when is something that is commonly addressed on the fly,  ??????  financial stress. So in this post, we’re going to explore what your typical project cost allowances might be, what you need to think about when looking at your funding options and how this could affect your cash flow.


The Cost of Construction –  just part of the picture

As we discussed in a previous post about  Upfront Renovation Costs, you need to have a total project figure in mind, because there are more costs involved in renovating then just the cost of physically building or renovating your house.

As a general rule, your ‘total’ renovation costs (or project costs) can, at a high level, be broken into 3 areas.

        • Upfront or Pre-construction costs
        • The cost to renovate your home or construct a new on
        • Contingency cost allowance


Upfront Costs – (Pre-construction)

puzzle pieces joined to form a house


The upfront (or pre-construction) costs you need to allow for will vary, sometimes dramatically from project to project, depending on the complexity of your project and the number of different professionals you may need on your project team.

A House Designer/Architect, for example, can cost anywhere between $3000 and $40,000 plus for their services – depending on the scope and complexity of your project and the level of service you require.

Keep in mind though budgeting for the cheapest option is not always the best strategy to take, a seemingly more expensive designer for example, may be able to better meet your renovation goals, and their specific area of experience may, in fact, save you money in the long run, in the form of creative and cost-effective design solutions, and/or a more defined scope of work may mean less variation to their scope of work and fee.

The level and number of Approvals your project requires will also impact your pre-construction costs.

You will have some control over the amount of some of these costs but others will be fairly set and unavoidable. Some things just need to happen one way or another, and if you need to get expert advice, then you need to allow for it. Some things,  Council Fees and charges for required approvals, for example, are unavoidable.

Due to these variable inputs and decisions at this early stage, the pre-construction budget can only be a general ballpark estimate at this stage.

A very general rule of thumb is to allow around 5- !0% of your total project budget.


What does this mean for your renovation cash flow

Allowing for and having access to these upfront funds for this pre-construction stage is important.  Bear in mind the choices you make will impact these cost estimates – both good and bad.

What people don’t always consider is that Construction funding or construction loans don’t kick until you have a signed building contract in place  So this isn’t generally an option for funding these early upfront costs.

Some of the ways people typically arrange funds through this stage include a general line of credit, a line of credit against equity, credit card with applicable limits, savings through the process, or cash.  

Everyone’s financial circumstances are different and we strongly suggest you seek professional financial advice against your particular circumstances and your project to work out the best funding options for you at this point.


Construction Costs

Builder and client discussing renovation


These are the funds required to physically construct your renovation project. 

Investigating and confirming a construction budget range that you are comfortable with, and that your financial institution will loan you and that you can actually afford – not always the same thing, by the way,  early is really important. Be aware though that in the early stages of renovation, it is very difficult to get an extremely accurate cost as the design is usually a preliminary one with many of the decisions and material selections not yet made. As a result, any cost estimates in the early stages will always be ballpark and usually based on a square meterage rate. Costing a renovation project is an incremental exercise as more detail emerges and more decisions are made, only then can the project costs be firmed up.


What does this mean for your renovation cash flow

Funds for the construction costs allowance are generally not accessible until you have signed a formal builders or other parties contract and the deposit has become payable.

If financing is required, most financial institutions have financial service offerings to cater to this section of the budget.

The offerings vary in nature between the financial institutions and some may offer a conditional pre-approval service.

There is a lot of good information online relating to construction or renovation loans.

Another thing to consider is that a construction loan will generally only cover a contracted amount. If you are intending to supply certain fitting & fixtures ( like bathroom or kitchen appliances, tapware, etc) or undertake work outside the contract – like painting then you will need to also allow for and fund these costs separately.

So it’s really important to discuss in detail with your financial institute your options, and how they specifically relate to you and your project so you can be sure you have the best most cost effective funding options for you.


Contingency Funds

lots and lots of coins


Renovating a home by its very definition means that in all likelihood you’ll be thrown a surprise or two during the course of construction, no matter how meticulous your planning is.

A recent client of ours started construction on a carport and came across a buried swimming pool shell that was covered up over 40 years ago. In a series of near misses, even the soil test holes missed hitting it, so it wasn’t until the footing being dug encountered the pool shell that the problem came to light.  Resulting in extra engineering and a change to the footing design to allow for it. (rare, and quite costly for the homeowner, but it can and did happen)

With that in mind,  it is important to have access to extra funds that can be called upon quickly if something unexpected arises.  

If you have a construction loan and you want/need to make a change (increases in $s)  some institutions will require you to pay this directly and not through the loan. Or require you to go through the hoops again as a reapplication or alteration.


What does this mean for your renovation cash flow

These funds may not be required as part of renovations, but it a really good idea to have a little extra up for sleeve if the need arises. ( and if you’re lucky enough not to need them, then its money saved or money that can be spent elsewhere)  

A general rule of thumb is to allow around 10-20% of your project budget.

Take control

You may be at this point feeling a little shell shocked and feel that your budget is being eaten away by other costs.  But the cold hard truth is that this is the reality of what a renovation really costs and the thing you need to consider. One way or another these costs will happen, and yes you do have control over what a number of them are. And the earlier you are aware of them the more control you have as to how you use them.

Staying in control of your project and your project’s budget is about knowledge,  being forewarned and therefore forearmed. The more you know the less chance of nasty surprises happening.

If your mindset is that understanding your project costs and cash flow commitment is empowering rather than a noose around your neck, then this positive attitude will help set your project up for a successful outcome.

While every effort has been made to provide accurate information, The Zen Reno does not guarantee that this blog article is free from errors or omissions or is suitable for your intended use. It is for information purposes only and expert advice should be sought regarding how this issue might affect your particular project.

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