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Geppetto
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My wife and I are planning on doing a pretty large renovation on our home, so I’m open to any advice you may have on how to finance, how long to expect it to take from first conversations with an architect to breaking ground. Essentially all the basic newbie stuff (e.g. do we get financing approval before speaking to an architect, do we get drawings from an architect before deciding on them or is that something we should expect when evaluating, etc).

The renovation will be fairly substantial, requiring additional foundation to the side and back (for a mud room), and the renovation of an attic to a livable space. Kitchen and master bath would likewise be improved. Probably looking at 400sqft of net new home and 250 sqft of upgraded existing space.

Lots of equity in the home, appraised in September at ~450k and owe 260k on the home. Wanted to share that since it could change financing suggestions.

1/3/2020 12:43:35 PM

smoothcrim
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first, look up setbacks and ground cover rules for your particular zoning to make sure you can even do what you want. draw up what you want, go to an architect if you want, but its probably not necessary. get some quotes and figure out if the time, cost, and massive inconvenience (people at your house early as shit every day) is worth the return in equity. consider when or what may cause you to leave your house, as we're probably heading for a real estate correction soon. sounds like you aren't going to be the gc so the gc running the project should handle all the other logistics like permitting, but def double check behind them.

1/3/2020 2:14:20 PM

HCH
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Are you getting a GC? They can be expensive, but depending on the extent of your renovations (which sounds significant), it would totally be worth the cost. They can provide guidance on all your budget, financing and timelines questions above.

We are also planning a major kitchen remodel, but have put it on hold until the GC becomes available. FWIW, I grew up building houses, so I would feel comfortable managing the jobs myself. But I know a good GC is worth their weight in gold, which is why we are waiting.

1/3/2020 2:28:13 PM

Geppetto
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Thanks for the info so far.

We'd definitely use a GC. I know that I not only lack the knowledge when it comes to home improvement, but I also don't have the time. I'm pretty certain if I ran it myself that I may save money but the project would drag on much longer.

Are there any recommended resources for financing, so I can educate myself a little bit before speaking to a contractor who recommends financing? I don't want to get roped into something that may be more beneficial for them than us.

Quote :
"get some quotes and figure out if the time, cost, and massive inconvenience (people at your house early as shit every day) is worth the return in equity. consider when or what may cause you to leave your house, as we're probably heading for a real estate correction soon"


I agree there will likely be a contraction but I'm not so worried about that as we really like our location. The main plan is to build a home that will allow us to stay in this location for as long as we can. So I'm not trying to make money off this as much as I am trying to design for my life and lifestyle. If that makes sense. We also have a place we rent out, so the goal would be to stay there instead of renting it out.

1/4/2020 12:12:35 PM

Wraith
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You prob already knew this but don't pay in full until the job is 100% done to your satisfaction.

Also, prepare for stress. Even if the entire project goes smoothly, you will have people in/around your house for weeks at a time.

1/6/2020 8:28:27 AM

smoothcrim
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^^ if you have as much equity as you said, you should be able to cash out 77.5k. any other financing would have to leverage another asset (like the rental you mentioned) or it'll be personal unsecured loan, which will come at a much higher interest rate. I wouldn't really worry about the rate though, as you can refinance once the work is done and you presumably have more equity in the house.

1/6/2020 10:12:45 AM

wolfpack0122
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Just make sure you don't design something that the budget will use almost every dollar you have. Renovations always have some kind of setback/unexpected extra costs. Some more than others. I'm a construction manager that has worked for a few builders and renovations/remodel companies. I don't know a bunch about getting financing or all that. But I have seen and heard of having to pull off remodel jobs because the clients didn't have the money to address a hidden expense that wasn't anticipated. So if you have a $100K you could spend on it, then don't design something that costs $100K. Stick to the $60-$70K range I would think. Although some financial guys may be able to give you a better number.

That number can also vary depending on how old your house is. Typically the older your house then the higher chance something unexpected will come up once you open up the walls and floors. Either from the original build or a previous owner having done a DIY repair/remodel that wasn't quite up to par.

1/6/2020 7:10:08 PM

CalledToArms
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I would agree that your initial contract price should only ever be about 75% of what your ideal maximum budget is (max). And if a designer or GC is asking what your budget is, the only number you give them is the 75% number. If you work on a design and get all of your initial pricing in, and you are over that 75% number, then it's time to VE some items before work even begins. Or if you are adamant in sticking to the original design, at least identify finish items (toilets, vanities, tile, etc.) that could be VE'd if you get to that point and have eaten up your contingency.

I've done some decent remodels but nothing over $25k (nothing more than a full kitchen, or the most recent was a full bathroom + other miscellaneous items), so I've never financed it. Can't be any help there.

I work in the construction industry and am comfortable managing the trades myself; however, I also work full time - so I always hire a GC that I have vetted best I can and work from there. Even then, I went to the house (we were living in an apartment for this last one) every couple days in the beginning and every day the last 2 weeks and took pictures and notes and sent them to the contractor daily. He was good, but I still found things I made him correct every third day I was out there probably. So, be prepared to spend a lot of time, even if you have a GC (which I highly recommend), especially if you are detail oriented and have a very specific vision.

Also: make sure you have a contract with clear scope, line item pricing, and dates. That contract should be signed by both you and the GC and it should include the payment milestone schedule. The milestones should not be tied to dates - they should be tied to progress. You'll likely have something like an initial down-payment, a first draw (first 2 are often larger due to purchase of a lot of materials etc.), and then draws at specific completion milestones: Electrical and plumbing rough-ins completed and passed inspection; drywall hung, finished, and painted; tilework completed and grouted/sealed, etc. These are likely grouped at times, just giving examples. Don't make payments based on passing of weeks. Along with that, final payment doesn't come until all punch-list items are completed.



[Edited on January 9, 2020 at 2:50 PM. Reason : ]

1/9/2020 2:45:47 PM

colangus
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Same boat... sorta. We're planning to reno our kitchen, laundry room, power room and a few other odds and ins.

We're in "take our money" mode, but can't get a GC to come out. Reminds me when we got married years ago in the Caribbean and everything was "island time"... drove us insane in regards to planning. So we're back in island time trying to find quality skilled labor who won't bend us over.

1/9/2020 2:57:39 PM

wdprice3
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now is the worst time, cost wise, to do major home renovations. Contractors are busy and turning away work or pricing high enough to have some customers go elsewhere.

1/10/2020 7:47:00 AM

Geppetto
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This has all been super helpful. Many thanks!

^I agree with that. We were have been waiting for the economy to slow a little, so we could get more for our money but things are still churning. My timeline now is mostly about doing it before we get a second kid on the way and being out of our home for a year is more disruptive.

That reminds me. I suppose we'd need to move most of our items out of the home for any room/area being remodeled. Is that right or could we group all our possessions in an area that is not being touched?

1/10/2020 9:03:51 AM

smoothcrim
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untouched? maybe mostly. undamaged? unlikely.

1/10/2020 5:04:06 PM

Jeepin4x4
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Quote :
"now is the worst time, cost wise, to do major home renovations. Contractors are busy and turning away work or pricing high enough to have some customers go elsewhere."


i am seeing this happen all the time. If you can wait, wait. Especially if there is a particular GC you are wanting to do the work. And if a GC or subcontractor says they can start immediately I would be leery of that too.

1/13/2020 4:34:00 PM

bcvaugha
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exactly. I'm just a simple landscape contractor and we're booked well into summer now- and I'm not in the RDU or Charlotte market. Don't trust ANYONE who can start in the next 3 months if it's a good sized project.

1/19/2020 3:10:49 PM

smoothcrim
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scarcity != quality

1/20/2020 12:36:00 PM

Geppetto
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Thanks everyone for all the advice. It has been super helpful.

We actually spoke with an architect yesterday, and she suggested everything that we wanted to do is quite feasible. She suspects that we'll be able to get around 300sqft of added space (as opposed to the 400 intended) and renovate all 2.5 baths and the kitchen for around $100K to $120K. I believe that figure includes the new water heater, hvac unit, and roofing that is about to come due anyway.

Sounds like an October ground break is feasible, so we'll plan toward that for now.

The only thing I am mixed on is if we should go bigger with the home plan or not. I'm having a hard time balancing what is big enough (current home is 1400sqft) for me, my wife, two kids, and a dog. The plan we discussed would create a designated play area of sorts downstairs and then expand our two smaller bedrooms, so that they would be more conducive to having an office and a room that kids could share, eventually moving to the children having their own room. I'm not very concerned about having a guest bedroom since I believe kids could bunk together when we rarely host guests.

Any thoughts here?

1/23/2020 9:29:53 AM

dtownral
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if you can add square footage you'll get a better return on that renovation cost than just upgrading the existing space, or are you just debating between the +300 sq ft vs something more?

[Edited on January 23, 2020 at 9:49 AM. Reason : .]

1/23/2020 9:48:28 AM

Geppetto
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I'm curious if we should essentially add more than the suggested 300sqft. I don't want to have square footage just for the sake of it, but I also don't want to go through all of this only to conclude 1700 - 1800sqft isn't enough for us. It's hard for me to identify what is an appropriate amount of sqft.

1/26/2020 4:08:37 PM

smoothcrim
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you add sqft until the dollars you spend are not returning you at least the same amount in equity. the ceiling being your budget.

1/26/2020 6:38:46 PM

DonMega
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tldr - dealing with house construction is stressful, especially when kids are involved. I encourage you to see if you can buy a house within your budget that has what you are looking for.

^^ my wife and I went through a similar discussion 5 years ago. We had a 1600 sqft house, 3 BR, one new kid and hopes for another one soon. I had lived in the house 14 years, was really close with a few of my neighbors, and loved the area. We thought of adding onto a previous addition on the house to get more bedrooms or make a better play area. It was a tough decision, and I was really committed to upgrading the current house. The cost of the addition was a lot, and we would have to commit to staying in the house longterm to get our use out of the investment.

The game changer was when my sister bought a new house, and I was surprised at what she was able to get for her budget. We started considering building a new house on my in-laws property and also looking at buying a house. We ended up buying a house 3 miles from my old one, and it was the right decision for us. We got the extra bedrooms, a dedicated space for the kids to play, and we didn't have to lose our backyard for an addition. It was about the same difference in budget (old house sold for 240k, new house was 350k and we spent ~20k in new appliances, light fixtures, and repainting the house entirely to get the upgrades we were hoping for).

My next door neighbor went the other route, he added a garage and a new master br/bath/closet so that he and his 2 kids would have enough space. He got what he was looking for, and it was also around 100k in upgrades (but it was a stressful 6 months for him to live through the construction and dealing with the contractor who was also a friend of the family).

Buying/selling a house with a new kid was also very stressful for me. We didn't list my current house until after the offer was accepted on the new house, but due to circumstances out of my control we closed on the current house before we closed on the new house, so I had to live with my parents for 4 months. My wife was not happy with the arrangement, and dealing with painters and house upgrades at the new house was a hassle. This is coming from a guy that LOVES DIY projects, but I realize now that young kids force a once weekend project to take months now.

1/26/2020 9:42:18 PM

Geppetto
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That's helpful. We did look at buying but to buy within our neighborhood it starts to creep into the 700's pretty quickly. While we could likely go 3 miles out, especially easy or south, and see that price tag fall dramatically, walking to the city parks, museums, restaurants, jobs, etc is such a big part of what we like that moving 3 miles would significantly change the game for us entirely.

We even looked at another home that was 1000sqft bigger than ours and in Mordecai but the low walkability there was a no go for us

I'm thinking that I'll see if we can add some more sqft by popping the top a few feet and renovating the attic. That would give us much of the length the the house in cost effective sqft since there would be no foundations and no plumbing. That would be another 400 or so sqft, which could pay off well.

1/27/2020 10:58:34 AM

dtownral
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if your complaint against mordecai was walkability, make sure you look at the blount-person-wake forest improvement plan that's in progress before deciding against it

1/27/2020 11:07:56 AM

CalledToArms
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Not to derail discussion, but if you're thinking purely about potential financial return, then I guess maximizing square footage makes sense. I don't necessarily think of a house that way though. I'm inclined to say you just built for the space you think you need during the time you plan to live there.

The house I currently own is only 1000 ft2 (previous house was about 2800). Lots of people we were bidding against had plans to either tear it down or add on (an entire 2nd story or a large expansion in the back) because of the value you'd immediately get back in this area. For example, the development looks like this (not my house on the right, but another example nearby in the neighborhood):



I really don't have any major expansion plans. I may add an additional bathroom and extend the living room slightly at some point (adding maybe 120-150ft total) but I may not even do that. Instead we've just continued the extensive renovation of the inside to be exactly what we want. We would easily get more return by expanding this house. We were pushing $300/ft2 for this house, so getting our money back with a smart remodel would not be difficult. But, we also don't need the space, nor the extra property taxes, insurance, utility bills, maintenance etc. so why build it?

Not saying everyone should live in 1000 ft2 (we also do not, nor do we plan to, have kids), but I also don't think everyone should just build as big as financially makes sense either. I would much rather have just as much space as I need and have that space be finished out to an A+ level, than just have more space that allows me to get more return at the time I sell the house.


On another note, if you do expand into the attic, and you don't want to spend money to incorporate it into the central HVAC system, it might be a good candidate for a dedicated minisplit at 400ft2.

[Edited on January 28, 2020 at 2:46 PM. Reason : ]

1/28/2020 2:45:00 PM

smoothcrim
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^I can see telling someone to have the best space rather than the most space, but that's pretty terrible financial advice in the absence of an assigned value for mental satisfaction

1/28/2020 3:22:20 PM

CalledToArms
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I don't agree that it is terrible financial advice unless you are guaranteed to get $X back at the unspecified future time you sell the house - minus fees, utilities, commission etc. associated with paying for, maintaining, and selling that square footage that you don't really need. That always feels really unnecessary to me.

But again, I don't think these kinds of decisions need to be about black/red financial decisions either. After my first house, for a primary residence, I will never again buy/build bigger than I needed purely on the hopes to make more money when I sell it. I'd rather keep the money more liquid and invest it.

I think there is an argument to be made for going that route in terms of trying to retire early. Having tons of net worth tied up in a house that you have to sell to realize looks good on paper, but doesn't necessarily help retiring early. And then if you sell the house, you're buying back in at current prices unless you move somewhere less expensive and possibly less desirable.

1/28/2020 3:37:56 PM

CalledToArms
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I can't find my spreadsheet at the moment where I analyzed this some in the past when considering buying homes to remodel/expand. But, using some north carolina numbers, at the time, I was analyzing the current realistic $/ft2 selling point for a house vs the TIC of an expansion taken out over 5, 10, 15 years compared to investing that same proposed TIC value in an index fund.

Everything was adjustable to evaluate for different scenarios, but the results I remember at the time were based on this:

-2.5% home valuation increase annually
-0.7 kWh/ft2 of energy usage @ 10.5c/kWh
-1% property tax (with no increase)
-A ft2 basis for insurance (cannot recall the value) (with no increase)
-5% market return
-6% sales commission for the house
-no maintenance costs specific to the addition
-long term capital gains tax

Using that data, the minimum cost difference between present value of a house ($/ft2) and the TIC of the remodel ($/ft2) to simply break even vs investing the money was this at the different interval years:

5 Years: $30 starting +delta $/ft2 (IE $150/ft2 current valuation, proposed remodel cost of $120/ft2)
10 Years: $50 starting +delta $/ft2
15 Years: $70 starting +delta $/ft2

Anything less than those numbers, and the plain investment won out. More than that, and you saw a profit for remodeling vs investing. Obviously it's going to depend on the local housing market and the overall stock market etc. In addition to that, even the scenarios where you ended up ahead, all the equity is tied up in the house.

But, the point being, I do not think it is blatantly terrible financial advice to suggest that someone may not want to build more than they need. Others may disagree, but I think it has to really be analyzed for a specific house/market, and is highly dependent on the type of ft2 being added: an additional bathroom or a larger kitchen vs extending a living room. In addition to that, it has seemed to me that the longer people plan to live in a house they are doing an expansion remodel on, the less chance they have of making a larger profit on the home investment vs just investing the money in the market. Hence: in a flipping type scenario it becomes clear what the choice is but in a house you plan to live in for 10 years or retire in, the choice is not as clear without more analysis.

[Edited on January 28, 2020 at 5:54 PM. Reason : ]

1/28/2020 5:51:49 PM

David0603
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I've been in my house over 12 years so looking at adding a few things, but don't want to price myself out of the market.
Right now I'm thinking of giving the whole house a fresh coat of paint, replace carpet with laminate, and maybe some wainscoting or something.
I may just hire an interior decorator to pick out colors and stuff since I don't really have an eye for this sort of thing.
Any advice/suggestions?

[Edited on January 28, 2020 at 6:07 PM. Reason : ]

1/28/2020 6:06:48 PM

Geppetto
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Lots of good stuff to consider @CalledToArms. Including the cost of maintaining that extra square footage and paying the insurance, and even the extra financing to build that space is something to consider for long term ROI.

I had already been considering the return based on the additional utility that the added square footage would bring, e.g. moving from 2.5 to 5 bathrooms or something crazy in a 1800 sqft home would have limited utility and thus appeal for return. But an extra living space/office/bedroom would. I also preferred the utility approach because sometimes I feel like really large homes, such as a 2500sqft one we looked at, end up with rooms that individually increase in size but provide no extra utility.

So based on all this, I'll probably focus on keeping the sqft minimal, addressing pinch points and minimal thresholds for some existing spaces and then adding additional space only if it provides additional utility.

1/29/2020 5:13:01 AM

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