The Unsexy Stuff: Renovation Money Traps

Last blog I promised to share some of our real financial-renovation story, aka The Renovation Money Trap…  

The houses are designed, you have BA, and you’re ready to dig the dirt. When this finally happens, after all that planning, it is cause to pop a few corks!  From herein, the cash tap is open and on full pressure as it all starts pouring out.

When people budget for a reno, they usually do a reasonable job of estimating the construction costs, and all the fun, sexy stuff including kitchens and bathrooms. What they often underestimate, or just plain miss (because they didn’t show us THAT on The Block), is the cost of consultants, engineers, council fees, utilities, and services. Then there are the holding costs: interest is the big one; but also rates and power.

As a rough guide, for our current reno (i.e. lift two-bedroom cottage, build kitchen and living underneath, refurbish existing upstairs to four bedrooms, ensuite and bathroom):

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  • the costs of the construction and renovation of the building are $300K;
  • we have another $30K for landscaping, driveways, and aircon; and
  • another $30K for consultants (engineers, surveyors, DA plans and lodgement, town planner), civil works (e.g. drainage), utilities, and services.  

This is an investment property, so if you’re building your dream home with dream fittings and finishes, or  adding on large decks, pools, second living areas etc, your construction costs will be significantly higher.

Of the construction costs, about 55% of that was spent in the first two months: lifting the property, excavating, pouring the concrete slab, framing, electrical and plumbing rough in, and installing doors and windows. The stuff that is not the least bit sexy or insta worthy!

Taking us to about 70% spend are the internal linings and external cladding, and that’s before we’ve even started on kitchens, bathrooms, laundries, bedroom robes, painting, floorboards, or landscaping. This is where quick flips, with no structural changes, have the advantage. They avoid the big costs and just do all the sexy stuff for immediate gratification.

The short story is: If you’re doing major structural changes, more than 70% of your budget will be eaten up by things that aren’t visually exciting. No-one ever appreciates the quality of your foundations! Having said that, if you add two bedrooms, a new kitchen, two bathrooms, two-car garage, and external street appeal in an inner-city area crying out for beautiful four-bedroom houses, you should get that 70% back in equity instantly!

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