Beyond Home Buying: Home Renovation As An Investment

by Silicon Valley Blogger on 2007-07-0628

Thinking of doing a home improvement project? Read on before getting that home equity loan.

I’m sure a lot of us has heard of home project horror stories. I have a colleague who lost his family in a divorce when he ran out of a $800,000 inheritance funding his “custom smart home”. And what about those folks who’ve been residing in trailers in their yard while they await more cash flow or the resolution of permit issues as their half finished house lies exposed to the elements for the last 3 or 4 years?

But for every such terrible story, there are many more with warm and fuzzy endings. I’d love to build my own house someday, but is it worth it?

If you’re going to embark on a huge home project, particularly of the “build it from scratch” kind, you may want to mull over some points beforehand.

What To Expect From Building Your Own House (or Doing Larger Home Projects)

#1 Employ some savings strategies.
Time to raid your savings accounts? Save money with these tactics:

  • Do it in phases. Get the basic features in and build to accommodate future phases.
  • Do some of the work yourself (or with friends), if you’re handy.
  • Compromise and prioritize, as I mentioned earlier, by including the stuff you most value or care about. We all need to learn to say “no” to ourselves sometimes.

#2 Your initial budget will not be enough. Tag on 10% – 15% to the original bid.
One of the first things you must accept when getting into a home improvement project is that it’ll probably cost more than you first thought. If you accept this fact early on, then if you actually avoid cost overruns, you’ll be pleasantly surprised. When a home contractor gives you a quote, it’s usually based on initial assumptions that will shift as your plans become more concrete. The budget therefore shifts in lockstep.


#3 Know what contributes to your home’s building costs.
Check out these tips from About.com:

  • Size: larger homes end up costing less per square foot as overall cost gets distributed over more ground
  • Shape: rectangular and dome shaped houses cost less
  • Site location and condition: doing prep work to ready your land for the project will add to your budget
  • Inflation and the market for materials and services: prices increase around 3% to 6% for every year you wait

Here’s a sobering fact: any home that is custom-built will cost more than a tract-built house of the same size or even one that is much larger.

#4 It will take what seems like forever.
Think in terms of years here. In some cases, even to remodel your bathroom can take some effort. Revamping even small rooms can take months to do, while encompassing changes can take years! Not every minute is used efficiently so it’s not surprising. Plus the permit gathering and architecture/design process can make things seem like they’re stalling. Here are thoughts from a guy who’s gone through this experience:

Building a house is often compared with running your own business. It’s likely to take you at least a few years no matter how you do it, and if you’re not careful, a decade. The stories of children growing up in tin sheds on owner builder sites are numerous and true. I’ve met some of them myself.

#5 Everybody needs to communicate.
If you don’t, watch out for dashed expectations. You’ll need to talk to your contractor and builders often. Results will depend on how well you dialogue with your development team and your spouse.

#6 Be ready for conflict.
I’ll be shocked if you don’t get into arguments with your family and your contractors on stuff. Hopefully it’s an occasional thing, but let me say that such a project can suck the life out of any partnership. It’s a huge cause of stress and expectedly, stress levels will be in proportion to the size of the project. Here’s a story: I’ve been involved in arbitration disputes over the cost of project mistakes due to silly misunderstandings with a home designer. No matter how good these guys claim they are, nobody’s perfect.

#7 Sorry, your house won’t be perfect.
Perfect segue. If you’re a perfectionist, you’ll have a hard time with this process. You’ll find that it’s rare to find someone who can do the job perfectly and the more work and detail there is, the more imperfections you’ll encounter. If you find a perfect craftsman somewhere, send them to me!

#8 Organization is key.
Personally, I wouldn’t try to take on the job as a general contractor. It takes a lot of experience and knowledge to do this job. Instead of risking failure, I’d hire a general contractor instead. All this will take paperwork, tracking and organizing so get those folders, calendars and project management/tracking tools ready. More words of wisdom:

So you need to adopt a realistic, businesslike approach to planning, budgeting and running your project, otherwise you can end up with an expensive and messy headache. Insurance is a particular issue these days, post September 11 and HIH. No-one will touch a half-finished project, and if your construction insurance runs out you can find yourself in financial and risk management no man’s land.

#9 Prepare to sacrifice a part of your life.
The sacrifice here involves your living conditions, family time, work time and so on. That’s why it’s worth having a good team of people help you out.

Saving money on materials takes a lot of time and effort. For most people time is money. That sounds very economic rationalist for an owner builder, but it’s a simple fact. If you are embarking on an owner building project you need to factor in (if not cost in dollars) the thousands of unpaid hours you and your partner will put in, the strain this could potentially put on you and your kids, or at least the lost time you could have spent lying on a beach with them all. I say this so you can think it through up front and plan a project which strikes a balance between self-sufficiency, saving money, sanity and practicalities like staying married.

A Home Renovation Story

Star Trek HouseI have an update on that Star Trek fan who custom built his house into a Star Trek ship. He hoped to eventually be hired as a builder specializing in Trekkie houses for other ardent fans. Earlier, he was rumored to have gone bankrupt, maxing out 14 of his credit cards in the process of pursuing this project.

But guess what, the news now is that he successfully sold his masterpiece for £425,000 (that’s a cool $857,055), five times what other homes in the area are going for. On top of that, he’s thinking of taking his profits to reinvest in yet another Trekkie house!

Star Trek House, Before And After Images

I’m not here to rail about what I think about his business plan, though there’s something to be said about the passion he has for his ideas. Despite his “interesting” goals, he sounds like a pretty handy guy who’s got a knack for home building.

I’ve been a veteran of a few home projects. I’d describe them as moderate in size and which, happily for me, turned out beyond expectations in some aspects, but dreadful in some others. I could’ve been more prepared prior to launch but you know how it goes, like many other things in life, it’s one of those things where you learn the most after being through the wringer.

Image Credit: TechEBlog and I.Z. Reloaded

Copyright © 2007 The Digerati Life. All Rights Reserved.

{ 19 comments… read them below or add one }

David July 6, 2007 at 9:52 am

We are planning on building our own home, its the only way we can get exactly what we want. Just have to decide where first; that’s the hard part!

Super Saver July 6, 2007 at 3:41 pm

SVB,

THe Star Trek probably sold to one of your readers from all the free advertising you gave the owner :-)

This story will be a great future example of “survival bias” which I will reference when I write the post. Specifically, people will always remember the success stories :-)

By the way, your articles (and several co-worker’s experiences) have convinced me never to build a house from scratch.

boomie July 6, 2007 at 4:45 pm

Uh, you’re forgot mentioning modular homes. No longer looking like ‘double wides’ these new modular homes are spectacular. We bought our land on a March 1st, moved into our modular home June 8. It included kitchen, wall to wall carpeting, linoleum floors, lighting fixtures, in other words: move in condition.
True, exterior land work took us some time, but we had a great roof over our heads and that was all that mattered.

Silicon Valley Blogger July 6, 2007 at 5:01 pm

@David – I’m looking forward to your house building pics on your blog! Weren’t you shopping for land over in Arizona/New Mexico at some point?

@Super Saver – I think your best bet is to try to find and buy a brand new house instead of rebuilding, doing major renovations or building from scratch. It’ll save you those months of smelling saw dust (esp if you decide to live in your house while you were having to work on it, which btw, is not a good idea IMO).

@Boomie – COOL! I haven’t had the pleasure to come across any modular homes before, just via pics. I enjoy pretty homes in all its shapes and forms! :) I’d like to see what it’s about.

J at IHB and HFF July 6, 2007 at 7:05 pm

Hello. One rule for estimates is to double the cost and quadruple the time–but there are many building options that work and your biggest obstacle might be your local government.

Real Estate Rox September 12, 2007 at 7:15 am

@Boomie
Modular homes in this area have increased in popularity as well. Some selling over $500k (well above median price range for my area) and include tons of upgrades. Some prefer it over custom built homes (less aggrevation etc) Grats on your purchase.

Rebecca from Remodeling Recon April 25, 2008 at 9:47 am

I agree that you need to be in really clear communication with your contractor because more often than not what you thought you were communicating and what your contractor heard and understood can very often be two completely different things. Spelling everything out in detail in writing in your contract though is a must.

Also the huge amount of time a person will spend researching all the materials to save time and money can go into months and months of research but who really has that kind of time to spend?

JP August 29, 2008 at 2:16 am

That guy was a nutter who built the Star Trek house. I can’t believe there was someone out there who wanted to pay that kind of money. I think the guy who built it must have remortgages coming out of his ears to get the financing.

Allison Ables August 28, 2009 at 10:58 pm

Haha. That house is ridiculous. Not too many people take on that type of project here in Florida.

Pokjat Personal Finance August 29, 2009 at 6:26 pm

Home renovation can give full satisfacion to homeowner. Some can gain more when they want to sell it.

Dino August 30, 2009 at 1:15 am

What about the options of custom detailing in a tract home? The individual project can add a great distinction, without the need of total destruction.

Greg August 30, 2009 at 12:57 pm

I’m looking forward to the day when I build a house. Whatever extra it might cost (sweat equity) will be well worth it.

If you want to do it perfectly, do it yourself!

S. Brown October 22, 2009 at 3:23 am

I’m not a trekkie fan, but that house looks amazing! I think the best thing about building your own house, or renovating one as you want it is that you get to see your ideas turned into a real property/room.

Kosmo @ The Casual Observer March 20, 2010 at 10:27 am

I’ll second Boomie’s comment. My mom has a modular home. You’d never know from looking at it, though. Quite spacious.

My dream home has one major requirement – a large library with floor to ceiling shelves for books :) My wife has additional requirements, though.

Silicon Valley Blogger March 21, 2010 at 8:50 am

@Kosmo,
Don’t know why but the wife ALWAYS has additional requirements. That’s a given. lol. For example, I care a lot about the vibe and atmosphere of a home, while my spouse just cares that he has a roof over his head…. :)

Exzel Smart Home July 19, 2010 at 11:08 pm

This man turns his obsession into a swooping profit of $650 grand by doing a Star Trek smart home. Just really need to find the buyer who is also obsessed with the same thing.

Andrew October 9, 2010 at 10:52 am

Home renovation can greatly increase the value of a home. This star trek guy is a great example. I’m glad he at least made a profit.

Andrew

Build A Property January 16, 2011 at 8:23 pm

I love Star Trek but I guess being a Trekkie is being on a different plane. I finally was blessed with being able to build my own home. I started a blog on the day to day to help people who wanted to embark on such a quest.

Ben Hobbs October 12, 2012 at 2:47 am

I’m in the home technology business and it can be difficult for customers to decide how much money they want to spend on things like home automation, multi room music systems and large screen TV’s. I always suggest that my customers spend what they are comfortable with and don’t spend a lot of money on gimmicks etc… all those Crestron touchscreens that cost a fortune a few years ago look ancient compared to an iPad.

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