After we made the decision to move forward with a kitchen remodel, the next step was to research, research, research. Being a realtor for 10 years, and having familiarity with construction, this part of the process went fairly fast for us and our decisions were easy to make. Once we had our mind made up, it was full steam ahead.
For those that are not familiar with the process, here are the steps that we took to place the plan into motion (and our notes for things we learned and suggestions for others). Its important to note that all of these steps are dependent on each other and overlapped at times.
Step 1: Budget.
How do you determine your budget for a remodel? The answer is more complex that making a financial decision on a dollar amount you can afford. You should also consider the property itself, future plans for living at the location, future financial goals, and current market conditions/future market probability.
Our property is a modest, country home. Chris bought the house for $179,000 in 2013. It is a 3/2, approximately 1300 sq feet, on 1.5 acres, with a HUGE 40×40 detached shop/garage. Given the size and features, the house will most likely resale to a single person, first time home buyer, or a couple downsizing (but looking for breathing room between neighbors) after their children move out. Given these facts, this home will never cross beyond the threshold of a conservative, middle class, country home – no matter what the market does in the future, the target audience will remain the same. In order for the new kitchen to be a successful investment for the property, we could not have a budget that would out price our future projection. Keeping this mindset helped us feel comfortable and was a grounding force in the pending choices that needed to be made for the remodel.
Our home in Seguin will be a 5 year home for us. We figure, in 5 years, we will have outgrown the house as our family takes root and starts to grow. This time frame, of course, depends on what the real estate market is doing at the time and how life unfolds; we will adjust accordingly so this time frame is an estimate. We based our budget on this time frame and what would be comfortable for us in the means of design, functionality, and cost. With the original kitchen layout, size, and features…we could guarantee a space that would grow more and more uncomfortable as time move on. We wanted to do the remodel now, and enjoy our kitchen for the next 5 years, while adding resale value for the future.
We also based the budget for the remodel on our future financial goals. For us, the goal for climbing the homestead property ladder is one of comfort AND financial benefits. We want to build equity in our home, increase the salability, and ultimately obtain a profit. Updated and modern kitchens provide a property with the most resale value; the profits from our house will propel our next homestead investment. Our budget for the kitchen remodel keeps all of these goals in mind.
The current market conditions and future predictions for growth in the Central Texas area also helped determine our budget. We evaluated the market value for the property in regards where it stands with the current market conditions and an educated guess of what the market value will be over the next 5 years. We settled on a budget that reflected a solid investment based on the conservative end of the the spectrum. Nobody can predict exactly what the market will do in 3, 5, 10 years, etc. At minimum, we will be able to get the money out of our remodel and at median we will make a modest profit; anything above median is considered a bonus to us. We were not going to play Russian Roulette with the market and bet our kitchen remodel against the riskiest probability. Basically, we are not putting a $60,000 kitchen into a $200,000 home. We are not comfortable with sharing our exact budget but I will say that we are under the $25,000 mark. More on this as I write about our decisions for layout, material, features, etc in a future blog.
If you are considering a remodel or improvement to your property, I will be happy to walk through the market, property value, numbers, and scenarios with you to help determine your budget in respect to your future financial goals.
Step 2: Financing
We learned a lot during this step of the process and the options available for financing a home improvement project. I am not going to share exactly how we are paying for our kitchen remodel but I will say that we examined all options and made a decision that fit best for our financial goals, personal situation, and budget.
Option 1: Obtain a loan. Check with your personal bank on the loan programs available in the forms of lines of credit, personal loans, and loans secured with collateral. Research the interest rates, terms, etc to see if this is a feasible option.
Option 2: Pay cash. No further explanation needed. if you don’t have a pot of gold at the end of your financial rainbow, get creative with things your can sell that are no longer needed around your house to build your cash flow.
Option 3: Use the equity of your house as collateral to fund your project. Most mortgage lenders and banks offer programs to utilize this resource. Some of them involve refinancing options and Home Equity Lines of Credit (HELOC).
Be smart with how you choose to fund your project. Please, do not refinance your home if you currently have a below market interest rate. Consider interest rates for personal loans, credit cards, and lines of credit. The time it will take you to pay the loan off should also be in consideration. Do not let the desire for a home improvement project overcome your financial means and personal budget – the goal is to have an investment, not a hindrance! I DO NOT recommend playing Russian Roulette with your hard earned money and credit capabilities.
If you discover that a major remodel is not within your budget….wait and save up or consider other smaller projects to add value. Get creative, the internet is full of home improvement articles and cost efficient options.
Step 3: Bids
This part of the process went very fast for us. As a Realtor, I have many connections and great professionals to lean on. I will be happy to share them with you as well! We loosely spoke with some people but really only got one bid. We had Robert and Margot Brown with AMC TXCI come out to look at the property and estimate the project. AMC TXCI is a local general contracting company owned by the Browns…and they are also personal friends!
Some people have varying opinions about mixing friends and business but for us it was the right decision. As soon as they stepped in the house we felt comfortable and confident with their suggestions, comments, and professionalism. Robert is extremely knowledgeable in the construction process and Margot has an excellent taste for design and colors. The two are a dynamic duo that combine a positive experience, friendly and fast communication, and quality results. We felt very comfortable as they moved through the kitchen providing options, ideas, etc to fit our budget. They were also very aware of what would and would not work for our situation…..”No Valerie, you can not afford quartz counter tops…..” LOL! We appreciated their realistic advice and pricing knowledge to keep us on point and in budget – this is our first time to remodel a kitchen and had no idea what to expect or how much things cost. They act more as consultants vs. salespeople. Here is a link to their website if you would like to check them out for yourselves! http://allmaterialsconstruction.com/
My next blog will discuss our design decisions for the kitchen remodel – more to come soon!