How to Renovate on a Budget
This week, I’d like to welcome Hubert of Love, Success, and The Sock Drawer for a guest post on what they learned by downsizing to an older house and renovating it. It was quite an adventure! I’m excited to read the things they learned. Welcome, Hubert!
TFP and Love, Success, and the Sock Drawer have no financial relationship.
It seemed like everything we wanted. But then reality set in. It was like we were starring in the classic movie “The Money Pit,” except we have a kid.
The road to hell is paved with good intentions.
We were trying to save money and get out of debt faster. We had sold our new 3,400 square foot house and bought this older 1,900 square foot house to reduce our mortgage payments and simplify our lives.
In some ways, we succeeded. We love the simplicity in the simple layout, the increased outdoor space, and the 20-year mortgage. However, as our first house was built in 2008 and didn’t have much in the way of repairs or renovations, we didn’t know what we were in for.
For example: did you know that retrofitting the house for earthquakes in order to qualify for reasonable earthquake insurance would be ~$9,000? We didn’t, since our prior house was already built that way.
We didn’t get it all wrong.
There are certain things that we learned we did right, or confirmed that we knew. There were a few of those “I knew that!” moments.
The most important one is “Starting with the end in mind” as Stephen Covey would put it.
That is, make a priority list and stick to the “must haves.”
Everyone will have a bunch of items on their list of things that they would want. I’m sure you can imagine a “dream” list now.
However, in choosing your “ideal home” we suggest you and your partner make a list of six priorities for a new house. Then compare lists and discuss. Those that match should be considered as “must haves” and have to be met before even considering a house. Everything else is negotiable.
Remember that the house-hunting is generally emotional in nature. A first find may seem good but then it’s just a little bit of a stretch to get a little more house with a few more amenities, and before you know it, you’re looking at a McMansion. Resist this temptation. By having a clear-headed list of priorities before looking for a house, you’re less likely to fall into this trap.
What we did wrong (i.e. what you should NOT do)
Sometimes the best lessons are from your own mistakes. As Marie Forleo says: “I win or I learn, but I never lose.” It’s a lot of the latter here.
For example, we suggest you don’t buy a house made prior to the late 1980’s.
Why? Four main reasons:
1. Lead paint was banned in 1978.
Our front door had lead paint. It cost an extra $500 to install a front door because of the extra precautions they had to take (EPA guidelines). Not only that, but I don’t know where else they used lead paint. It’s always something we have to worry about whenever doing work for the health of us & our son. In fact, he had to be tested to lead poisoning because of his potential exposure.
Still not officially banned, but used a lot in the 1970’s, and decreased throughout the 1980’s.
3. PVC Pipes
This house has galvanized steel pipes, which was common in the 1950’s. Moreover, the main sewer line is concrete, not ABS/PVC (what modern homes are made from). The problem with this is twofold.
First, yesterday I paid a plumber to snake the drain for a clogged kitchen sink. Apparently this is more common with galvanized steel pipes.
Second, cement sewer lines erode in time. It’s expensive to repair (think upwards of $30k) when it becomes necessary.
4. Grounded wires didn’t come around until the 1960’s.
It’s expensive to redo the wiring in your house, not to mention a safety issue.
Kelly and Hubert are a dual physician couple young in their careers and family who started Love, Success and the Sock Drawer as a means of educating young professionals on how to balance their relationships, successful careers, and family life. Their website hosts a variety of topics related to relationships, well-being, work-life balance, and basic physician finance.
But what if you think you’ve found the perfect 1950’s (or earlier) house?
Try to avoid major kitchen / bathroom remodels
Remember a few other things: never forget that you’re a busy professional. Why do I bring this up? Because I’m pretty sure you don’t want to be cooking on a portable stove in your basement while you wait for your kitchen remodel to be done.
Two adages come to mind here:
Remodels always take longer than they are supposed to. In our case, a simple basement remodel that was estimated to take 4-6 weeks, actually took 8 months. True story.
Your contractor can be: cheap, good, or fast. Choose (up to) 2. We struggled with one for the contractor we used above.
Pretty self-explanatory based on the two adages above, but if you’re having to do that much renovation to make your ‘dream house’ that much better, you should probably just move on.
Remember that your house is not an asset.
If you don’t know what I mean, consider reading Rich Dad, Poor Dad. Everything that you spend on your house is a liability that you will pay for with after-tax dollars. In other words, every dollar you save in terms of NOT renovating, is the equivalent of two earned.
Moreover, remember that the cost-to-value (CTV) ratio is on average ~64% (meaning that you get back about 64 cents for every dollar that you spend on renovations). A further breakdown if you’re curious can be found here.
What does that mean, practically? Let’s say you live in California and you and your husband are both docs earning an average doc salary of $196k each. Say you spend $50,000 adding an additional bathroom today. You would have to have earned $73,778 in pre-tax income, to have it add only $27,350 in value (54.7% CTV ratio) if you sold your house tomorrow.
Let’s recap: $73,778 gross income → $27,350 value. Ouch!
That’s like paying for a Tesla Model X but driving away with a Subaru Forester (btw, we love our Forester).
So what can you do to get outsized returns?
Don’t change the function of rooms and don’t change structures
Avoid huge remodels. It’s easy and relatively inexpensive to put up new drywall or to even put up non-load-bearing walls. However, to run plumbing, add electrical or fundamentally change the function of a space, ends up costing much more money.
Avoid taking down load-bearing walls, of course. Naturally, it’s often hard to tell until you’re in the thick of it, but sometimes you can obtain blueprints (occasionally that were filed with the city) that can help.
Opt for selective upgrades
There are some upgrades that we’re glad that we did, and some that we regret.
In general, anything that helps with curb appeal tends to be the best in terms of the CTV ratio. For example, when we bought our current house, it had this awful red door that was probably original (with lead paint).
We replaced it with this nice fiberglass door, which lets in more light, now matches our color theme better, and has a CVT ratio of ~90%. Same with the window above the garage, which had a broken window seal.
However, other upgrades we’re deferring simply because they don’t make sense. For example, there are at least 3 other windows on the main floor that don’t match the new windows in the rest of the house. At ~$1000 a piece, forget it!
Other small projects that we’ll likely undertake (at some point):
Retiling a small tiled entryway. Total cost ~<$200 in total materials
Redoing the closet in the hallway and master bedroom closet shelves, from this to that:
The point is that small, inexpensive upgrades can make a big impact in the overall appearance of a house, which can make a big difference for resale down the road. Likely in a more cost-effective manner than major upgrades.
Slap some lipstick on that pig.
When we moved into our house, there were awful, original wooden hollow-core doors throughout the house. There were 17 to be exact.
Initially, we had thought of replacing all of them to the more modern 6-panel doors. But what got us was the cost and the waste.
So, instead, we happened upon this website, which opened up our eyes. We’ve since added panels to the closet doors in our bedrooms, and simply painted the doors in the rest of the house after sanding and patching any dents. We got new hardware, and updated the casing + baseboards throughout the house (more on this later). Total cost of redoing the doors: ~$400. Total savings: ~$8,000.
You are more capable than you think.
You may have heard of the “What is your time really worth” calculator. I’ve done it, and I love it but I also really struggle with it.
On one hand, as a physician I get paid a lot and my time is worth a lot when I am at work. However, when I’m not at work (e.g. my days off or on the weekend), if I’m not working on my side hustles, what is my time truly worth? My main criticism of the calculator is that it overestimates this time and can lead to overspending.
With that said, one way to consider saving money on your renovations is to do the work yourself. I estimate that I’ve probably saved at least $30,000 by doing stuff myself rather than hiring out (again, that’s post-tax).
Everyone’s situation is different. You may work in a situation where you can and then it’s a different calculus for you. Or you may already be working 6 days a week where it’s not feasible to do extra work at home. Totally understandable.
Save Money by DIY
Here’s a list of things that I’ve done that have saved me money or added value, and about how long they took me in terms of full days of work:
Redoing the doors ($8k, ~3 days of active work).
Redoing the casing and baseboard ($6k, ~3 days of active work)
Doing the flooring in the basement ($2k, 2 days of work)
Redoing the shelving in the closets ($2k, 2 days of work)
Painting the whole house, bit by bit ($4k, 6 days of work)
Installing backsplash ($2k, 1 day of work)
Landscaping ($3k, 3 days of work but ongoing)
Remodeling basement bathroom ($5k, 3 days of work)
Fixing sidewalk ($3k, 1 day of work)
To be clear, I’m handy but I had none of these skills prior to owning a house a few years back. Most of this I’ve learned from YouTube, reading online or asking my local hardware guy. I have some basic equipment but a lot of the equipment you can rent.
The thing is, you’re very capable. You can figure it out and very well may actually like it!
Let the government help you out.
Make sure to look for incentive programs that may exist in your area as you upgrade your house.
When we upgraded our washer and dryer, our local utility company offered a $100 rebate for each when we replaced them with energy efficient models. Win win!
Moreover, the provider of our natural gas also did a free energy assessment and provided us with energy efficient shower heads and tips to lower our heating bill, etc.
We also had the opportunity to have a rain cistern installed for (basically) free by the state as well as part of the “RainWise” initiative. Free water for the garden during the summer. Score!
And finally, counterintuitively, we actually saved a bunch of money by installing solar panels in 2019. We financed them because we got a super low rate with a “green loan.” Yes, they were expensive, but they provided an immediate 30% tax credit, so we ended up with a refund check from these panels of ~$7k. We basically don’t pay for electricity now, and the payback is in about 8 years, after which time it’s all in our favor. Meanwhile, we benefit the planet and the solar industry by voting with our dollars. It’s a win-win-win.
To boil it down to three concepts:
And get your hands dirty.
Good luck and happy renovating!
Thank you for sharing your words of wisdom and congratulations on your success!
Stay frugal, y’all!
Standard Disclaimer: Not meant as individualized financial or medical advice.