Remodel Finance or Why does it cost more then we thought?

Hello Friends and Family:
I thought while Sandy and I are waiting for the county building inspection, we would share our budget. Like, I said in my last blog, you can't discuss Budget without including Scope and Schedule. Next task, is how we going to fund this remodel. The most logical solution is getting money from the equity in our house. We re-financed twice to achieve our funding needs. The first time we re-financed we had to fund our prerequisites and create core pot money for the construction contract. However, we needed more funds for the entire construction budget because of the prerequisites. We decide to re-fi again because the market value for our Wikiup properity had increased. We were also able to get a better mortgage and a Line of Credit (LOC) to give us the cash for the whole project. A plus was we included two mortgage impounds for taxes and insurance into our bi-weekly house payment.

Below is our home as viewed by an appraiser's diagram for determining the market value of our Wikiup dwelling. I will use this floor plan to discuss the scope of this remodel.

Our house living space total is 3224 sqft, if you back out the bedrooms and master bathroom spaces (dotted red lines) the actual space under construction is 2200 sqft or 70%. What that means is our home living space is 30% occupied. We are fortunate to have a 600 sqft studio to use while the rest of our home is under construction.

When we decided to stay in our home (first blog) we had home prerequisites to accomplish before starting construction.

The following is a list of pre-remodel expenses for our Wikiup home:

1. Re-roof our house ($31,000)
2. Paint house and stain deck ($16,000)
3. Clad front support columns (6"x6" post) in stone ($4,500)
4. Upgrade plumbing system: tank-less water heater, water conditioner, (3) toilets, etc (S13,000)
5. Redo exterior lighting fixtures and wiring upgrades ($3,000)
6. Replace front and interior doors ($13,000)
7. Design fees, structure engineer plans, and county building permit ($10,000)
8. Seven new appliances for our kitchen ($9,500)

After completing the list above, we were ready to select a General Contractor (GC) and get a construction bid for the remodel. We selected D-Built Construction to do the work. A typical team assembled by the GC are carpenters,  electricians, plumbers, painters, stone masons, floor installers, cabinet markers, sheet metal fabricators, stone counter fabricators, etc. It is the GC job to manage the scope, budget and schedule of these trades or sub contractors. The owners generally works with the GC to manage the overall construction budget. In this case, the GC coordinates and compensates the subs as well as his material and fixtures ordered and delivered to the job-site.

Construction expenses are usually presented in a lump sum contract with spaces clearly defined, owner supplied items, allowances and added expense per owner approval. We went over this document twice with the GC over a two month period to insure what was our expense responsibility. We accepted the $175,000 contract broken down into five milestone payments. They are triggered by special order materials, demolition complete, cabinets delivered, hardwood floor installation completed and end of construction and elected add-on costs. What most construction projects suffer from is budget creep or 'what in not covered in the contract'. These expenses have to be bid separately or handled as a time and material expense billed directly to the owners.

To date we have several additions that are in this category:

1. Added the family room renovation to the construction scope. 
2. Insuring the red oak hardwood flooring stain is uniform throughout the house. 
3. Replace ten windows with e-glass upgrades.
4. Paint back porch

The last thing, I wanted to share in this blog is how Sandy and I managed our construction budget. I love spreadsheets so when our interior designer shared her tracking tool, I based my budget tracker on hers. The first thing, I did was take each line item in the construct contract as a row in our spreadsheet. There were 38 rows of descriptions, allowances details, add-on costs, exclusions and owner supplied materials. At the end of this list, I broke down the payment schedule into payments made and due to complete the contract. I then added all the non-contract expenses with descriptions of scope as new line items. I wanted to track funding sources so I could assign the money needed. These sources include: cash in savings, a special 401K account, the Line of Credit and credit cards. We are very careful on how to prioritize these funding sources and when to use one over another.

What is the big unknown... the completion date, we don't have a clue...

NEXT: A day in the nature of things big and small at our Wikiup Home.

I will plan to include short videos in future blog.

I have received only two comments to date. I would appreciate hearing from you.

Send me an e-mail, casteele@sonic.net