In researching for this article I first went to Google and searched “remodeling budget.”  Not surprisingly most of the websites that came up were for “budget remodeling” and really had nothing to do with creating a remodeling budget. 

Of the ones that did pertain to creating a remodeling budget they all focused on determining your DTI (debt to income) ratio to see if you could be approved for a loan.  Then after determining your DTI you would then find a monthly payment. 

This confused me because in the DTI ratio calculation you have to enter an estimated monthly payment for your renovation project.  If I’m starting from scratch and trying to create a budget how am I supposed to know what the monthly payment is going to be on my project?  Don’t I need the total amount to calculate my monthly payment?

So I scrapped that idea.  I figure it is more important to get a general idea of how much something is going to cost to create my budget.  Once I figure out a rough estimate of how much my renovation is going to cost I’ll then decide if I can afford it and then try to get financing. 

So how do I come up with the estimate on cost?

Let’s start by deciding on what we want to remodel.  For this example let’s use the kitchen. 

Now for some more questions.

Why do we want to remodel?  This can be anything from I need more cabinet space to it looks like it was built in the 1920’s to my neighbors just renovated their kitchen.  For this example we’ll use the 1920’s, no particular reason, just for fun.

What are our goals?  We don’t need more square footage but we do want new appliances, cabinets, countertops, flooring, some green elements and we want to open the wall between the kitchen and the family room.

Are we changing the layout?  We’re not going to add any square footage to the kitchen but we are going to open a wall, and move the sink, dishwasher and stove.

How long am I going to be in my home before I move?  The rule of thumb is that a typical remodeling project is going take about 5 years to recoup the cost.  We’ll plan on being in the home for at least 5 years.  If you plan on staying longer you will have more time to recoup the cost and can increase your budget. 

How big is the kitchen?  Our kitchen is going to be a 245 square foot kitchen in a 2100 square foot home.  After doing a little research on the internet we can find that the kitchen is generally 9%-11% of the home.  Ours is a little more than 11% so we’re on the large size. 

What is the value of our home?  To find this lets go to www.zillow.com.  This is a site where you can enter your address and it will give you the value of your home and the surrounding homes.  It will also usually give you the square footage (assuming you haven’t done any additions without a permit).  We’ll use an Atlanta home valued at $300,000. 

Now that we have answered the questions let’s start creating a budget.  After doing some research on the internet I’ve found that, on average, the consensus is your kitchen remodel will cost between 10% and 20% of the value of your home. 

Knowing that, for this example we’re going to go for 15%.  15% of $300,000 will give us an initial budget number of $45,000.

That seemed a little easy huh?  We’ll we’re not done yet.  We still have to factor in the answers to the previous questions.

First the wants, We're going to add a recycled glass and cement countertop instead of laminate (I’ll show you why laminate later).  We’ll add 1% for the tops. 

Now let’s look at the layout.  For taking down the wall let's add 1% and I’m hoping we can get by with 1% for moving the plumbing, electrical, and gas to move the sink, dishwasher, and stove.  You don’t have to add 1% for everything and you can try to factor in actual costs if you want, but I find it easier to just add .5%, 1%, or 2% depending on what you are adding.  Plus, don’t forget you can subtract too.

So we’re adding 3% which brings our total to $54,000.  It’s still in the 10%-20% range we found on the internet but can we get a better estimate?  Shouldn’t it matter what area of the country we’re talking about?

To answer these questions we’ll look at a very helpful site.  Remodeling Magazine’s Cost vs. Value Report.  Remodeling Magazine puts out this helpful guide every year.  You can look at the national averages or break it down by region and even major city.

Let’s go there and see how our price compares.  We’ll look at the Major Kitchen Remodel in the Atlanta section of the South Atlantic area.

They have it at $56,611.  Pretty close, huh?  Let’s take a closer look and find out what we’re comparing it too.  Click on Major Kitchen Remodel under Mid-Range. 

You’ll see it’s for a 200 square foot kitchen with 30 ft. of semi custom cabinets, island, laminate tops (I told you we’d get to them), etc. 

We’re not changing some of these things in our kitchen (lighting, ventilation, etc.) but our kitchen is significantly bigger.  This is where the guess work comes in.  Considering the size of our kitchen and the work that will have to be done to move the mechanicals for the stove, sink, and dishwasher, and the wall that has to be taken out, I’m thinking we may be a little low but keeping that in mind we have somewhat of an expectation of our cost that we can proceed with. 

We can now use this number to calculate our DTI and get some preliminary numbers to start our financing.  We now also have expectations as to the numbers our contractors should come in with. 

By no means should this be taken as a scientific method to create an exact budget or something that tells you that every kitchen remodel will cost a little more that $50,000.  Every home and every project will have a different set of circumstances that will affect the cost of the project.  This guide should serve as a something to give you a better idea of what to expect and how much a remodeling project will cost. 

Remember, if you have a project let 3 contractors bid on it.  Research their work and references and use this guide to compare their quotes to what you think it should cost.  If they are all way above the number you came up with you may have calculated something wrong or underestimated the cost of an “extra.”   If they are all below maybe you did the opposite.  Every contractor prices a job a little differently so figuring out what price they are going to give you is impossible.

Hopefully this article has helped you with your remodeling project budget.  If you live in the Atlanta area and are considering a remodeling project give us a call or email us and we’ll be happy to help.