Your success as a real estate investor can hinge on your ability to accurately estimate how much a renovation will cost.
Knowing the cost of a renovation is a skill you need whether you’re renovating for a rental investment property, renovating for a flip, or renovating your own home. Accurately estimating how much it will cost to make the property rentable or sellable for the price you want is key information to have before you ever put in an offer.
What affects the price of a renovation?
Before you begin with renovation plans, it helps to understand what can drive the cost of your renovation up or down. You’ll need to be aware of the following factors to get an accurate estimate for your renovation.
1. Where you live
The same renovation work will be priced differently based on your geography and zip code. For instance, according to Remodeling Magazine’s 2020 data, the U.S. national average for a mid-range bathroom remodel is $21,377. In the south central region of the U.S., which includes Texas, that cost is $19,198. In the Pacific, which includes California, it’s $24,757. Like most things, it’s likely going to cost more to renovate if you live in a dense city than in a rural suburb.
2. What you’re renovating
Renovating a living room or bedroom is going to cost less per square foot than a kitchen or a bathroom where things like appliances, fixtures, cabinets, and plumbing can drive up costs. Home Advisor estimates that a bedroom renovation might cost $10 a square foot, while kitchens can easily climb beyond $100 a square foot.
3. The extent of the renovation.
Are you making mostly surface changes or are you doing a gut renovation? In New York, renovation matching company Sweeten estimates that a gut remodel with stock materials runs between $100 and $200 a square foot. While a non-gut remodel with stock materials is about $100. It’s one thing to paint a wall or swap in a new sink or faucet, and something else entirely to rearrange a kitchen layout.
4. The caliber of finishes, appliances, and other add-ons.
For a bathroom renovation, you might spend $150 on a low-end bathtub or $800 on a fancy one. Oak wood floors cost $2 a square foot, while maple hardwood floors go for $15-$20 a square foot, according to Home Advisor. Add labor-intensive items like detailed mouldings and custom tilework and the price goes up. The same is true for outdoor work. While adding a new roof to a house may cost an average of $8,159 according to Home Advisor, it’s still possible to spend much more—like if you re-roof with slate or copper. It’s possible to shop around to get the look you want for less.
5. Any code or permit requirements.
Different municipalities have different requirements for permits (which cost money and can take time, which also costs you money). Doing work on a house may force you to update certain aspects of the home up to code, which can add to the project’s bottom line.
6. The age and condition of the space.
A designated historic home may come with specific costly requirements on renovations that a 60s ranch may not. A circa 1930s home might require extensive work on the electrical system when upgrading a kitchen, while an 80s kitchen might not.
Most renovation gurus suggest budgeting in somewhere between 10% and 20% of the project cost for the unexpected. It could be the surprise of asbestos tiles, pipes that need replacing, or some other thing (and there’s always something).
How to estimate renovation costs accurately
- Do your homework by using online calculators. Sites such as HomeAdvisor and Remodeling Magazine offer breakdowns by zip code, project type, and more so you can get an idea of what something might cost. Houzz also has discussion boards where you can ask and answer questions about everything renovation focused.
- Find out what friends and neighbors paid for similar work. Get detailed feedback on their contractors. What went over budget? Where did they go wrong in their estimates? It’s less painful to learn from other people’s mistakes. And local information is your best data.
- Get multiple bids from recommended contractors. Once you’ve got a firm idea of what your renovation should cost, it’s time to get bids. Experts suggest you go with neither the cheapest or most expensive bid, instead shooting the middle. Be sure to ask about the timeline and get a contract.
Estimate renovation costs: Dos and Don’ts
- Don’t over-improve your home, especially if it’s an investment property. Some experts caution you not spend more than 10-15% of a home’s value on any one room.
- Prioritize home renovations with a high return on investment, like kitchens and bathrooms, and avoid ones with the worst return on investment like an upscale master suite addition.
- Be sure you’re in touch with what homeowners or renters really want in a home like nice kitchen counters and security features.
- Don’t skip updating the outside of the home. Landscaping projects to improve curb appeal and upgrade outdoor spaces can pay off in higher rents or a higher selling price without the big bucks of an interior renovation.