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Home Investment Part Two, Prioritizing Projects

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Hi friends, sorry for the delay. Back to school and some upcoming sinus surgery has me totally thrown off track. Bless it. Ironic because I’ve been working for weeks on how to organize my thoughts to convey that there really is no way to prepare for the way things are going to shake out when you undertake major house projects. And here we are. If you’re just tuning in, this is Part Two in my series on profitable home ownership, and a third collection of my learnings from surviving a major home renovation on my fifth house. Feel free to visit Making your home a profitable investment, Part One, and/or Reflections on a Renovation for the whole story.

This installment is focused around projects- and maybe it’s totally irrelevant to some homeowners who are fortunate enough to buy a truly move-in ready home, but so far every home I’ve ever bought has had projects that needed managing, and some homes are completely overwrought with them. Our most recent home was a total fixer-upper (not dilapidated, but not up to code in even the slightest sense, let alone updated), and the project costs became astronomical almost immediately. Initially, we thought we’d just hire a construction firm to handle it for us a la Chip and Joanna Gaines, but we quickly realized that the budgeting on those shows is considerably understated and that doing a full to-the-studs remodel managed by a construction company just wasn’t in the cards for us. Instead we began the painstaking work of digging through the projects ourselves, prioritizing what we felt we could handle (and afford) and then outsourcing where it made sense. It was a long and hard process, and the budget consistently went beyond our expectations no matter how realistic we tried to be. Every home we own is an education for me, and this one has proven to be the most eye-opening of all.

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So let’s dive in, shall we? As I was crafting this message, I was also writing the final check for our remodel and thinking what a relief it was to finally be finished. Who am I kidding? I was writing the final check to our remodel company for the last of the budget overages, but we are only getting started on paying for the actual renovation itself, which brings me to the first and most important step:

Step one: Determine your budget for projects in general. If you don’t know off the top of your head how much money you have in the bank after all your bills are paid each month, you definitely aren’t ready to start picking projects. Even small projects start consuming more and more of your budget- if for no reason than for the fact that any home improvement you make will draw attention to the improvements that could still afford to be made. It’s a blessing and a curse. So know how much money you can afford to spend each month on home improvements and work backwards.

Step two: Determine the source of your funding. If you can fund your projects with cash, bravo to you, friend. And hopefully that’s all you have to do. But for major projects, like ours, you may need to familiarize yourself with construction loans and home equity lines of credit. Word of warning: nearly every construction firm out there works with a “preferred lender,” but the most important concern is not getting approved for a loan. The most important thing to ask is: “can I recoup what this loan will cost me in the long run?” 

When we started the fixer upper process, I was an idiot. Okay, not an idiot. But I was blissfully ignorant. I truly believed our house needed about $100,000 in improvements and that that amount would cover the entirety of a to-the-studs renovation on my obviously well-built 1959 quad-level family home. You guys. The contractors who walked the house with me two days after we closed, explained to me that the standard (and I confirmed with several competitors) rate was $100 per square foot, with a 5-10% budget for overages. My house has 3200 sq. ft. including an unfinished basement. I went from mentally making a $100,000 investment to making a $370,000 investment. Mental. Head slap. I was so incredibly devastated. There was no way we could afford a project that cost that much. And our relocations are always managed by my husband’s corporation, which has a clause about relocation benefits not covering homes that are listed as-is. Meaning if we had to sell this home as-is, we wouldn’t have any benefits afforded to us for moving on.

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This kitchen is special and nostalgic to us, but future buyers probably won’t have the same affection for it as we do.
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Initially we were told the fireplace needed to be covered with built-ins and the adjacent wall would need to be moved. We opted to keep the fireplace and only change the paint and remove the carpet.
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No major changes, but the carpet and the paint really made a difference, no?

The contractors I interviewed were quick to inform me that they work with preferred lenders who would be eager to grant us a construction loan, and they weren’t lying. But…I thankfully had great realtors who knew the area and who were willing to walk the house with me. They both made it very clear that if I spent $350,000 on home renovations, I’d have to price my home well above what would be acceptable for a home like mine in my area. In other words, I’d never recoup my investment. And for me, that’s not acceptable. There’s no level at which I’d like to live that I’d be willing to make a bad investment, not in that amount. So we opted out of the investment and got to work on our own. We decided we would still need to do major projects like bathrooms and the kitchen, and we’d have to add air conditioning and replace windows and doors, and to cover the cost of those major projects we would need to use a blend of construction and home equity loans. More on that later. Bottom line, the size of your projects will determine the source of your funding- just don’t get out over your skis and sink in more money than your investment is worth.

Step three: List the projects one by one, and get ready for research. Our list was extensive, and many of our projects felt like essentials until we saw the enormity of the task in front of us. Here’s some of what we wrote out:

  • Remove carpets to reveal hardwood
  • Remediate asbestos tile in basement and den/guest bedroom area
  • Replace windows and sliding glass doors
  • Repair and replace brick and stone pavers and steps in the backyard for safety
  • Replace the stoop by the laundry room
  • New interior doors
  • Paint throughout
  • Paint trim
  • Install whole-home generator (Michigan winters are brutal)
  • Total bathroom renovations
  • Total kitchen renovation
  • Install gutter guards
  • Stain and seal hardwoods
  • Have boiler examined and tuned up
  • Landscaping in the front lawn
  • Garage releveled and sealed
  • Basement flooring sealed
  • Driveway sealed

Then we had to be genuinely honest and figure out what we could do for ourselves and what we couldn’t. Ultimately, the expert advice is consistently to do the money-makers first: kitchen remodel is the biggest bang for your buck, and bathrooms are the second best investment. Unfortunately for us, if we were to have all-new appliances, or even the work of a construction company demolishing and installing said appliances and new kitchen finishings, we would need an entirely new electrical panel, which we’d also need for air conditioning (which at seven months pregnant when we moved in, felt completely vital), so we had to start there. It was pretty humbling to see how much our list cost, and how absolutely wrong I was in what needed to come first. I had no idea what a new electrical panel or generator would cost, or that they were essential to the rest of our project so they had to take those funds, no matter how hard it would be to recapture it on the sale end. The more research we did, the more difficult it was to decide which projects to take on.

Step four: Figure out what you can do yourself. And if that’s reasonable. Our first contractors told me that a way to save money would be to manage our own demolition. But at seven months pregnant with a house full of small children and a husband working full-time plus, demolishing a house that could potentially have asbestos hiding in the eaves was not exactly in the cards. But we could remove the carpets ourselves (bloody miserable in 90* heat with no air conditioning), we could paint, and we could find vendors to work with us on small jobs like epoxy floors in the basement and garage, and new windows and doors throughout the house.

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That’s me, gearing up for painting in 90* heat and robustly pregnant. Oh and that pixie cut was the result of a lice epidemic at our house. All I do is win, baby.

Figure out what “do it yourself” looks like for you.

My job from 9-5 is homeschooling and nursing a baby and managing this house, and my husband’s job takes more of his day than that. A lot of us manage to work full days and then use what’s left at the end of the day to take care of regular household jobs. It’s a lot to do small additional jobs like pulling up carpet and painting and digging out weeds and overgrown garden beds, but it’s an awful lot more to take on rewiring an entire house and bringing 50 years of building code up to date. For us that placed a good bit of the traditional sense of DIY out the window. We did things like replace light fixtures, outlets and switch plates, and then we found local contractors to work out smaller jobs for us. Which brings me to…

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This small countertop in our hallway half-bath was easy for me to remove myself. And a local plumber happily installed a standard vanity from a big-box retailer after we painted.

Step five: Leverage local tradespeople to handle smaller projects. We have four bathrooms in our house, but two of them are really small half-baths. I had Home Depot contract a tile floor job for me, and I bought inexpensive but nice looking vanities from Home Depot to take the place of the old formica and pink porcelain ones. I hired a local plumber to install both vanities and new toilets, and painted the bathrooms and installed all new fixtures and mirrors myself. Those two bathrooms cost me less than $5000 between them, and in the course of it I found a great tile guy who wound up doing a TON of other projects for me at a great price, and a great plumber who helped me see that my water heater did not need replacing (praise YHWH!) and that my washer was leaking into my basement. Don’t underestimate asking people who do good work if they do other jobs- my tile guy is an all-around fabulous handyman who replaced trim and even corrected a support-pole issue in my garage. That alone saved me thousands of dollars and the headache of finding a company to take on such a small job.

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A good coat of paint, higher-end faucets and light fixtures, and a few new materials go a long way in making things look completely different. If only all our jobs were this simple.

Step six: Call in the big guns when you need them. Our kitchen and master bath were just too much for me to take on myself. Initially I priced out keeping the footprint of our kitchen and just painting cabinets and replacing countertops and appliances. Unfortunately we had soffits that lowered our ceiling height considerably and our cabinets hanging from them created a cave-like environment, without a lot of free workspace. It just wasn’t functional. The master bath was even worse- the shower was so small that my husband couldn’t use it- but to enlarge that we’d have to move a wall and reconfigure the layout of the entire master suite. So we needed an expert.

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This was the master bath. There was no way we could use the original footprint, let alone any of the original fixtures, and we needed a pro to manage that for us.

Step seven: If you call an expert, be prepared to pay. I was able to save us money in small ways, but ultimately there’s no getting around the $100/sq ft rule with major contractors. The work has to be done right. And for us that meant taking out a construction loan in addition to the home equity loan we used to fund our electrical work and air conditioning. If you’re not familiar with them, construction loans require detailed plans and inspections every step of the way. The money isn’t transferred to you or your contractor all at one time- it comes in draws as the work is completed. The paperwork process is very tedious, and it takes a good contractor to navigate the process and provide all the right documentation along the way. You’ll have to be prepared for a downpayment, and you’ll need a contingency plan for overages. How will you handle the overages? Will your loan have a contingency clause that lets you extend the total amount of the loan over the original budget? Or will you pay those out of pocket?

We had to face some pretty harsh realities with our project as it continued to go further and further over budget- even though we never exceeded the dollar amount we’d determined was a breaking point for being able to recoup our investment, we did have to exhaust a great deal more of our savings, and the final mortgage number (a construction loan rolls up into your mortgage at the end of the project into one larger mortgage payment) wound up taking significantly more of our income than we’d allowed for initially. It was fine and we’ll all survive, but finishing the project really pushed us to the point of asking ourselves how committed we were to doing this. It’s always so nice looking at HGTV and the great final results they post, but it would really be helpful if they were a bit more honest about how families who take on big projects make it work financially. Bottom line, be prepared to go back to that original budget again and again and be honest with yourself about how committed you are to finishing the job.

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Step eight: Don’t forget to live. This house means something special to us. We love it here. But it was easy for me to hate it while we navigated this project. I just could not get over the sheer number of projects we had to tackle. I couldn’t believe how every single thing we checked off the list only highlighted more things that needed to be addressed. In the first six months we lived here, I drove 15 miles. I literally never left my house. All my time was spent working on things like caulking trim and painting ceilings and replacing dusty old wall outlets and push-button switches with new shiny white ones. I almost lost why we were doing all this to begin with.

Truthfully, your home is where you live with the people you love. Hopefully it looks like everything you’d want in a home, but if it doesn’t, and especially if you’re taking on an unconquerable list of chores and jobs, you should know that the state of your home is no reflection on who you are or what you’re worth. Take time to do the things that you love and enjoy. Give yourself a day off at least once a week to just enjoy something that recharges your batteries. I’m so thankful that our family took a weekly shabbat so that we could pause the wild and crazy pace we set for ourselves. And I’m honestly so thankful that we finished this project and now the only thing ahead of us is paying for it. 🙂

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It’s been a traumatic year and a half for us. Our oldest daughter moved out of our home and to another state, we moved across the country away from a place we loved, we welcomed a new baby into a house that was half demolished, and we did all this construction during a time that we normally would have spent making friends and getting plugged in to a new community. If I had to do it all over again, I’d probably start with step eight and work backwards. And truthfully I would probably live in the house as it was and take our chances selling it without relocation benefits. I can tell you this- as lovely as this project is, I will never make such a huge financial commitment to a place again, whether it’s my forever home or not. I’ve certainly had to face the reality that being able to live your life the way you want to is a lot more enjoyable when you can pay your bills, and while we’re blessed to be able to pay ours, I sure won’t enjoy that new mortgage payment, new kitchen or not.

Here’s to making good investments friends- ones that pay off in the long term but still let us live in the short term.

xoxo~

LWH

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