Get Out of Debt Guy

Home Renovations Can Break the Bank If You're Not Careful

Posted January 19, 2015

Lately people have been asking me about how to remodel or renovate a home on a reasonable budget. That's a great question and one that most people never ask before embarking on a desired project. I must admit I didn't before I learned the lessons the hard way.

On HGTV and other outlets the lessons learned about blowing the budget are nearly always on display. You know the scenario, the host has to come back to the homeowner with bad news. It usually involves the homeowner saying, "But we don't have money for that in the budget."

It seems that on television and elsewhere people go about the home renovation and remodeling financial forecasting with exuberant optimism and not prudent caution. After all the lure of high-end finishes and a home that looks like a television showcase has great pull.

So what is one to do. I recently sat down with Craig Ferri, owner of Front Street Construction, to discuss these matters. Craig has extensive experience in a wide range of projects, from the small home remodel to building large scale apartment complexes.

What became very apparent in talking to Craig is how sophisticated commercial contractors are and how they know the best methods to control risk and errant costs.

As a homeowner, many of those tips Craig shared would not come naturally.

And it seems us lowly homeowners are also faced with the position of being the least experienced person in the room when a general contractor arrives. Frankly, it's hard enough to get good contractors to show up to bid on a project. It would be doubly hard to have a contractor give us a line item budget so we can understand what the projected costs are. And those that will are typically the most expensive.

But what I learned from talking to Craig Ferri is that the highest estimates might actually be the most accurate and least surprising at the end of the project.

Craig said, "It's tough, because for a homeowner and a builder, for anybody to accurately estimate it they have to know all the unknowns and they don't know all the unknowns, that's why they are unknown."

But a more experienced general contractor is going to build in a buffer for those contingencies and that's going to inflate the budget.

One point that seems to be missed on most home remodeling shows is the contingency the homeowner should set aside. The host typically asks what the budget is and they run with that. And that number is usually the limit of the available funds.

But Craig shared some very important advice in our interview. Craig said that the homeowner should hold back from their ultimate budget by 15% to 20% to allow for cost creep. Craig agreed that going into these home improvement and renovation projects is going to eventually lead to a final number other than what was planned, "More than likely it's not going to be the final number," he said.

And if the remodel or renovation comes in under budget, Craig added the money left over can be used to increase the level of finishes. Now that's smart.

If you'd like to read and hear the entire interview, click here.

Steve Rhode

WRAL Get Out of Debt Guy

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About this Blog:

Steve Rhode has had careers in opthalmology, real estate and as the head of a nonprofit debt counseling firm. On his blog, he offers hard-won, free advice about getting out of debt, consolidation and making the right choices as you manage your money.