Getting ready to buy your second or third or fourth home?
There’s a good chance you’ll spend more on renovating this house than you did on your starter home, and that you will end up going over budget on those projects.
Repeat home buyers spent a median $25,000 on home improvement projects in 2017, according to a survey by Houzz.com. First-time home-buyers spent $15,000 on such projects, as did long-term homeowners. Repeat buyers likely spent more because they are older, and thus have the money for such projects, and they typically buy larger homes than first-time buyers.
That spending pattern holds up for the largest renovation projects, too. The top ten percent of repeat-buyer renovators spent a median $120,000 on home makeovers, compared to $80,000 for long-term owners and $60,000 for first-timers.
Over three-quarters of all 2017 renovators created a budget for their project in advance. That’s up from just 69% in 2015. This may be the result of a general sense of stability in the economy and optimism about the near-term future, according to Houzz.
Unfortunately, almost half (46%) of those budgets got busted. The biggest reason cited for budget overruns (42%) was the homeowner’s decision to upgrade to more expensive products and materials. You know – real wood instead of laminate, Viking instead Kenmore. Ignorance was a close second (412%) as inexperienced homeowners simple under-estimated the cost of materials and labor.
Changing the plan midstream was also costly. It accounted for 31% of overages, as did the discovery that the project was more complicated than first imagined.
Don’t be totally discouraged by those numbers. Learn from them and you might join the 49% of renovators who completed their projects on a budget – or the 6% who came in under budget.
As a financial planner, I was most excited by this finding: Cash is king. The vast majority of 2017 renovators (85%) paid cash for at least a portion of their project. About one-third of the renovation costs were put on credit cards while another 11% were paid for with home equity lines. The numbers total more than 100% because survey respondents could give more than one answer. That makes sense, as some folks likely used a mix of cash and some form of debt.
Half of all homeowners plan to start or continue a home renovation project in 2018. If you’re one of them, congratulations. Remember, things always cost more than you thought, take longer than you could have imagined, and probably won’t add as much value as the real estate agent suggested. But none of that will matter when the job is done and you are reveling in your “new” home.