We have all heard the horror stories; Your project is nearing completion, the work is looking great (we won’t even start on being over billed for inferior work) and the original estimate is not even close to the bills you are currently seeing. It is a mad scramble as you talk to your bank manager about the line of credit increases, max out your credit cards and empty your savings. All the work in your new home is tainted by the horrible financial mess, let alone the stress that it causes you and your family.
In order to prevent these kind of extremely stressful and unnecessary events from happening it is important to bring together a team that understands each other businesses as well as understanding what will work most effectively for you. The three pieces of this puzzle are as follows: Property assessment and resale value, financing, design and construction.
Financing (understanding what you can afford): Step 1
So often we have heard of clients balancing lines of credits, mortgages, loans from family, and credit cards, all often inflated with interest amounts because they are so desperate to be able to get their families into their partially finished renovation or build. It is a common occurrence and one that can be easily avoided or minimized with effective financial planning. Here are the steps to make sure this part of your build is understood and protected.
It’s time to make a list! Sit down with all of your financial information and make a list with three headings Credits, Debits, and Savings. Under Credits you will need to make a list of all the various income sources that you have. Be honest! If one of your income sources is inconsistent try averaging it out over a year. Secondly debits. What are your average monthly expenses? Some will be set, write these down first, and others will vary, try to take an average of these over the last year (Also think ahead! Is your child leaving for university next year?) Be prepared! Finally, in the savings category but down the amount of unfinanced cash you are willing to spend on this renovation and/or purchase.
Phew! Lots of numbers! But you are now armed with your first tool!
Now it’s time to go visit your mortgage broker. Be very careful in your selection of mortgage brokers as the barriers to entry in this field is extremely low and you need a highly trained professional here. Bring your new tool with you to this meeting to make it as effective as possible. Using your credit debit tool, your financial professional will help you understand what you can actually comfortably afford so you can develop a monthly payment amount that you are actually able to carry. The financial professional can give you a couple of options financing. They should sit down with you and show you how much you can pay max for fully completed house, as well as the sliding scale between purchasing a house in need of repairs and the money the bank will loan you to repair it. You now have your second tool!
Property assessment and resale value:
When you are looking at an existing home or expanding your current homes there are a couple of key numbers the you need to know. You need to first of all understand current market value, so that you have a baseline point to asses your renovation value increase. To do this have your Real Estate Professional do a market assessment of your current property (if you are renovating) Or estimate the amount of the house you are looking at will probably sell for (not the list price!).
Contractor: What to expect from your contractor
Contractors have a tough job and need to wear many hats. It is important to make sure your contractor is qualified to give you the proper advice on the part of the project he or she is advising you on. Dry walling is a very different skill from construction estimating, and risk assessment but something all contractors are expected to understand and advise you on. No wonder there are so many disasters in construction! Would you ever hire at guy who puts your car together to advise you on how much it costs as well as tell your insurance company how much your monthly payment should be based on a risk assessment they have completed? NO WAY.