Renovating has been all the rage since the pandemic, resulting in home improvement projects taking nearly four times as long to complete compared to just a few years ago due to rising material costs and labor shortages.
In 2019, it took just 22 days on average to get a job done, according to a recent Jobber survey, but in 2023, that average day count has grown to 79 days. Spending on projects increased by 11% in 2021 and 15% last year.
Despite the setbacks, surveys show most American homeowners remain keen to renovate again this year.
Amid an uncertain economy, higher interest rates, and a touch-and-go property market, homeowners seem to be staying put and building up their homes. According to The Hanover Insurance Group’s 2023 Home Buying and Renovation Report, it is going to be a big year for home renovations.
The survey questioned 2,064 U.S. adults, including 1,444 homeowners, and found 61% of U.S. homeowners are planning renovations in 2023. A quarter say they are preparing major projects. They’re also ready to open their wallets, with 41% of U.S. homeowners budgeting over $50,000.
Yet renovating is not as simple as picking a spot for the pool to go in. Before picking up a power tool and knocking down that wall, it’s best to take stock of the financial side of the project.
Home Improvement Budgets
Renovations can be costly and require proper planning, not only of the physical space but the costs involved. Before homeowners start demolition, financial advisors recommend their clients start by understanding the costs upfront.
“The first thing I recommend to clients is that they make a plan,” Mike Hunsberger, CFP and Owner of Next Mission Financial Planning.
“They should understand the scope of the job and whether they have the time, skillset, and money to complete the project,” he adds. “For larger jobs, they should also understand the local building codes.”
Depending on your specific needs, your project will need to consider a range of cost factors. Quality contractors typically don’t charge by the hour but instead, quote for the whole project. Those quotes usually fall between 10 – 20% of the combined cost of the project.
Their rates may vary, but hiring a lead contractor will likely cost between $300 to 500 per working day as a yardstick measure. Additional laborers to help them get the job done will come in around $200 per person.
Every home will be different, but certain project types can help set your expectations. For instance, according to HomeAdvisor, installing drywall usually could cost as little as $2,000, while remodeling a bathroom may cost roughly $11,000. Things get pricey with a home addition; a new room or balcony will cost tens of thousands at a minimum.
Homeowners can cut down on these costs by doing the work themselves. However, they shouldn’t assume that will necessarily make it cheaper. Not only do they still need to buy the materials and tools for the job themselves, but they also need to factor in the time they will sink into doing the project, which could cost them additional income.
Depending on their experience level, homeowners typically move at a much slower pace than a professional, adding to the length of the job.
“Deciding on hiring professionals or DIY depends on how skilled you personally are with home improvement projects and if you want to do them,” says William Nunn, CFP and Founder at Horizon Financial Planning.
“Keep in mind, whatever you do, it’s not a problem you can walk away from. It’s your house, and you have to live with the results.”
Confirm Your Insurance Coverage
Home insurance is another important factor.
Over one-third of homeowners surveyed by Hanover – exactly 34% – aren’t aware they need to inform their insurance company about a home renovation. Alarmingly, this marks an 8% increase from Hanover’s 2022 survey, underlining the need for homeowners to be informed of how renovations can impact their home coverage in case of a claim.
“If you are doing a big renovation, it’s best to get your home appraised afterward to make sure you have enough coverage to build back what you would lose if you experienced a total loss,” says Nunn.
“You can do this by calling your insurance company,” he adds. “I know some people don’t have their homes re-appraised after a renovation due to higher insurance premiums and property taxes, but it’s probably the best way to figure out how much additional coverage you might need.”
“You should absolutely inform your insurance company if you are going to put in a pool, they might not cover it, and conversely, if they do cover it, then you might be in for a rude awakening when you get your new premium. Call ahead and ask if it will be covered and at what cost. It’s better to go into putting in a pool with your eyes open,” he says.
Renovating a home can be a costly undertaking, and there are many factors to consider.
Homeowners need to factor in the cost of materials, labor, building permits, and codes, which vary depending on the property’s location and the size of the project. Additionally, home insurance premiums may increase with major renovations. With many people hoping to enjoy a comfortable retirement in their home, it’s important to ensure insurance coverage is adequate to protect the house’s value in case of unforeseen events.
With so many costs to consider, many homeowners find soliciting the guidance of a financial planner can help them get a better grasp on the project’s numbers so they can draft a plan that fits their budget and goals.
This post was produced by Wealthtender and syndicated by Wealth of Geeks.
