The Most Common Money Mistakes When Building (or Renovating) a Home
In this modern era of home improvement TV, where homes go from beast to beauty in the amount of time it takes to do a quick scroll through Instagram (what? It’s called multitasking), what often gets lost is the immense amount of work and money that goes into an actual home renovation, let alone building a home.
Beyond that, many of the everyday issues that DIYers, developers, and owners run into are edited out of the final cut—making things seem a lot rosier than in reality. (Hello, timed-for-TV montage.)
“You really need to cross your t’s and dot your i’s,” says Warburg Realty associate broker Ted Karagannis, who is currently building his own vacation home on New York’s Fire Island.
He notes that one of the most common errors he sees is simply people’s lofty expectations. Grand ideas of five-star kitchens, stunning exteriors, and more can lead to outstretched budgets and quickly skew from original plans. (Remember, every adjustment along the way adds time to a project, and time equals money.)
Additionally, big renovations don’t necessarily translate to your bottom line. Realtor.com estimates that an average renovation can cost at least $25,000, with that number rising quickly. Bigger projects can easily eclipse $50,000.
“Especially on lower-end properties in New York City, if you start doing major renovations, you’ll never get your money back upon selling,” Karagannis says. “You have to define everything in advance.”
Understanding every cost, timeline, and checkpoint before demo day starts is the easiest way to establish and stick to a true budget.
Karagannis also notes that renovators often underestimate what their project will do to their tax liability. Remodeling typically increases your home’s value and can cause a domino effect leading to a reassessed property value and, thusly, an increased tax bill. It is imperative to check with your local assessor’s office before renovations begin.
“Taxes were a top question for me,” he says. “As a result of the build, my personal taxes are going up. ”
According to Compass South Florida agent Jordan Kramer, taxes are just one piece of the larger sum of home renovation and home building. “You have monthly mortgage payments, ground up construction costs, and sometimes—likely with a developer—even the cost of construction loans,” he says.
He adds that one way to control some of those ancillary costs is to not overbuild for your neighborhood. “The finishes you put in, or the appliances you place, those might be unrealistic for your market and you may not be able to recoup that cost,” he says.
“However, you want to spend in the places where it makes sense: flooring, kitchen hardware, quiet-close doors,” he adds. “These are aspects people, namely buyers, pay attention to.”
It all comes back to paying attention to all of the intricacies of building in your particular market. For example, Fire Island has a strict building radius for Karagannis’ plot of land, so he had to build his home within just 35 percent of the available space due to environmental restrictions. He was also on the hook for an extra $65,000 in flooding and draining protections to meet FEMA requirements and local code.
Understanding all of these added costs in advance limits the untimely (and costly) surprises down the road. And that’s certainly something HGTV doesn’t tell you.