December 1, 2024

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Inflation-proofing Your Renovation Budget | Think Realty

Inflation-proofing Your Renovation Budget | Think Realty

Despite labor shortages and increases in the price of materials, staying open to possibilities and turning up the creative juices can help investors achieve quality renovations that attract buyers.

Real estate investors who renovate and redesign for retail are in the business for more than just numbers. Being able to see past layers of chipped paint, rusted hardware, and DIY fails to spot potential brings a satisfaction beyond the paycheck at the close of a deal. The manifestation of a design vision that breathes new life into tired, neglected walls so they become someone’s loved home once more creates a sense of pride that adds another layer of wealth.

However, frustration has started to replace the excitement of home renovation as shortages in materials and labor as well as price increases continue to be a challenge. Many investors find themselves struggling to meet budgets for making necessary repairs and marketable updates while maintaining a worthwhile profit.

By cranking up the creativity and keeping an open mind, investors can face these new challenges head-on, continuing to provide quality renovations that buyers will love while staying within budget.

Budget Basics

Investing for retail begins with the challenge of creating (cue: deep, echoing voice-over) “The Renovation Budget.” The profit potential and renovation budget for a project are symbiotic numbers. They slide up and down a scale determined by formulas that include estimated ARV over acquisition, holding, and marketing costs, so it’s extremely important they are accurate. A trustworthy investing software is a must for this purpose and, really, all aspects of real estate investing.

Renovation budgets must be created with several factors in mind: costs individual to the property, its location, and current materials prices. It is best to err on the side of caution and consult a local licensed contractor for project bids versus using a generic formula.

A reputable contractor is an essential part of your renovation toolbox and can be a huge help in many ways. They are usually creative and can provide excellent ideas for design challenges; they can keep the project on time; and they can itemize bids for labor and installation materials separate from customer-supplied materials and finishes, making it easier to stay within and on top of your budget.

So, where does more creativity and an open mind come in? We’re getting there!

For most retail projects, the renovation budget consists of a mix of structural repairs, functional redesign, and cosmetic updating for a property to reach its full ARV potential. Structural repair costs like the foundation, roof, plumbing, and electrical don’t offer any real dollar stretching and belong at the top of a budget priority list. It’s important for a professional home inspector to identify these types of issues before an investor commits to a project. Structural issues should be considered and accounted for when an investor negotiates an acquisition price.

Now that the structural issues have been accounted for in the budget, it’s time to address what will make the property appealing to potential buyers.

Design and Cosmetic Finishes

Functional design and cosmetic finishes are the first things potential buyers look for after price and location. Exterior curb appeal, interior layout, and finishes are all big-ticket features buyers don’t want to be required to change immediately. Clean, neutral, and functional elements are musts.

But what is big-ticket for buyers is also big-ticket for investors, right? Not necessarily, especially when you look at ROI. It’s worth the cost to update responsibly, but the question is how to stretch those dollars and make them go further.

Bulk and sale pricing on finish materials like tile and carpet is old news to investors. But materials like windows, shingles, siding, granite, and paint just don’t go on sale often, especially in the quantities needed for large-scale projects.

It’s not common knowledge, but many local recycling facilities offer repackaged, recycled paint in 3- to 5-gallon buckets. Early on, paint types and colors were dumped together and blended into” light” or ”dark” brown options, but the process has been improved over the years to create a wider array of neutral colors. Many don’t separate by finish, so the end product is an eggshell variety, which works great for interior walls. Some facilities even separate and blend specifically for exterior grades. And. It’s. Free. Search the internet for “reblended paint near me” for local facilities.

A rehab project using interior reblended paints. The floor finish is an example of another budget-saving technique involving a sealed concrete overlay.

The image of the interior staircase in the accompanying photo shows another great budget-stretching design upgrade.

When faced with a house full of outdated, cracked tile, investors automatically think the fix is going to be expensive, and it can be. The cost of labor to remove old tile from a concrete subfloor and to replace it with new tile or even carpet can take a huge bite out of a renovation budget.

A savvy budget-stretching option? Sealed concrete overlay. A reputable installer who can lightly sand the floor to rough up the existing tile surface, re-adhere any loose tiles and grout, and add two to three applications of self-leveling concrete overlay and sealer can produce a strong, beautiful modern floor that adds an undeniable “wow” factor for potential buyers—but at roughly a third the cost of traditional replacement options.

Using low-grade options for tile, countertops, and appliances is a solution many investors feel they must resort to, but salvage and surplus supply stores can be a treasure trove of high-end materials at deep discounts. They can even be more cost effective than “going cheap.” Discontinued or unclaimed custom orders of everything you need—granite, tile, lighting, appliances, bathroom fixtures, cabinets, flooring, doors, and even windows are available at a fraction of the cost of “cheap” materials.

Consider windows for a moment. Many older homes have odd-sized, energy-wasting eyesores with rotting frames that need to be replaced. Ordering custom windows is budget‑crushing in terms of both money and time. Consider replacing them with slightly smaller, new salvage store windows that are easily reset, Sheetrock patched, and trimmed out—without blowing the budget. This solution works exceptionally well if exterior siding is on the list to be renovated. Even if new exterior siding is not in the plans, a larger exterior window frame or siding transition can complete the repair and even add coveted curb appeal.

A neglected 1970s-era split-level updated to a neo-craftsman cottage using the window hack mentioned in the article. Surplus windows retailing for $220 each were purchased new at $40 each, with an additional 10% discount for purchasing tile, bathroom fixtures, and lighting for the same project. Always, always ask for a discount. The only other answer besides “no” is “yes.”

A good way to stretch the budget for appliances and kitchen cabinets is to browse local marketplaces for sellers remodeling their own kitchens. Mixed cabinets can be reconfigured and painted, and gently used high-end appliances are budget-maximizing superheroes.

These cost-cutting tips may seem time-consuming, but keep in mind that many salvage and surplus stores generally have enough inventory to make it a one-stop-shopping trip as long as you come armed with measurements for the items you’ll need. Most even offer delivery options, or contractors can usually pick up purchased items if agreed upon up front.

By far, the most important hack for ensuring that you stay on target and maximize profit for any real estate investing strategy is to start right with your initial numbers. Use trustworthy real estate investing software, reputable and licensed inspectors, contractors, and service providers. In the long run, you’ll save time and money and avoid expensive pitfalls that can happen when you try to cut corners. Think creatively, be open-minded, and invest smart.


Suni Goff’s passion for real estate remodeling design and her talent for insightful, well-researched writing are the cornerstones of a prolific, successful career that spans 20 years in the real estate marketing and rehabbing world. Goff has ghostwritten numerous professional articles, educational programs, and books for 11 best-selling authors.