Unexpected renovation costs that can blow the budget

When it comes to getting the house a refresh, there are many small costs that need consideration. A good credit adviser can help identify the costs and how best to raise funds.

When watching property and renovation shows, the host frequently advises that you should go in with open eyes: know what it costs, know what can be compromised and stick to the plan. Yet, as with many big projects, things can go wrong and convert the quest for a new kitchen and bathroom into a financial headache.

Find a place: Renovating the kitchen means the family will have to eat out for a week. That’s breakfast, lunch and dinner. Assuming an average meal cost of $15 person, a family of 4 will spend $180 per day or $1260 for the week. This cost could be reduced by buying pre packaged food from the supermarkets.

Tool cost: Little things like paintbrushes, tapes, screws, stationery all add up into the costs.

Cost of overestimating one’s abilities: We have frequently heard of the DIY projects going wrong. The result is increased costs just to correct the wrong. Know your limitations. Sometimes it’s best to get the professionals to do the job. Experienced professionals may cost a little more but the job will be done to satisfaction. I learnt this the hard way when I had to rip off the work done by an inexperienced tradesman!!!

Raising finance: After adding the costs, it’s time to raise the funds. The cheapest solution is to use our savings. But many prefer to go to the bank to raise funds. Below scenarios, show how much a $50,000 loan will cost, excluding bank fees and charges.

This scenario assumes that a $50,000 home loan for 30 years is taken at 4%. While the monthly instalment is a low $238, the customer pays an interest of $35,934 over 30 years.

This scenario assumes that a $50,000 personal loan for 5 years is taken at 10%. While the monthly instalment is a high $1,068, the customer pays an interest of $13,741 over 5 years.

This scenario assumes that a $50,000 home loan for 10 years is taken at 4%. While the monthly instalment is $506, the customer pays an interest of $10,747 over 10 years.

As you can see, a discussion with a good mortgage broker can help you decide the right finance solution. If you are planning a renovation for an investment property then it might help get advice from your tax accountant.

Disclaimer statement: This article provides general information only and doesn’t account for your personal objectives, financial situation or needs. Your full financial situation will need to be reviewed prior to acceptance of any offer or product.

For more information call Vivek at 0 415 675 780 or email vivek@finkonsel.com.au

Vivek Perti is a Tax & Business Advisor (FinKonsel Accounting P/l is Tax Agent#25767376) and a mortgage broker (Credit Representative 473246 is authorised under Australian Credit Licence 389328).