Finance Roll

Whether your renovation project involves putting in a new $200 sink or $50,000 kitchen, at some point labor and materials people are going to stick out their hands and say, "Pay me!"

In almost all cases the supplier will want cash (unless it is a large company that handles its own financing, rare in this field). So now you must find a way to come up with the money.

Typically you'll need to pay a portion of the renovation cost up front when the job starts and then the balance when it's finished. For big jobs, midpoint payments may also be required.

As you begin figuring out where to get the money, the most impor¬tant mistake to avoid is to think piecemeal. You should always attempt to arrange for the maximum amount of funds you will need. If you estimate your project is going to cost $10,000, then get financing for the entire amount. (Actually, arrange for $11,000, just to be sure!)

Never, ever, start any renovation project unless you have arranged for all the financing. Be sure you know exactly where the money is coming from to complete the job before you begin. The last thing you want to do is to find yourself halfway through the project without enough money to finish. You could end up with a ripped-apart home that you might not be able to live in, might not be able to sell, and (if things go really badly) might even lose to foreclosure!

Can I Really Afford to Do It?
My mother used to tell me, "Don't have eyes bigger than your stom¬ach!" She was cautioning me not to waste food, to take only as much as I could eat-good advice for anyone.

A similar approach applies when renovating. Never tackle a project that you can't really afford. Yes, a new $25,000 bathroom will add enormously to the livability of your home. And eventually, when you decide to sell, it will add value and salability. But if you can't afford to spend $25,000, it doesn't matter. You shouldn't tackle the project.

An exception here is if you're renovating in order to resell quickly (which most people aren't). Here, you must create a sales plan that incorporates all the costs of renovation (including finance interest and sales expenses), plus your profit, to be recouped from the sale. Even so, you're walking a fine time line-if you don't sell quickly enough, the renovation costs could cause you to lose big time.

So how do you know if you can afford it? Most of us think we have an accurate feeling for what we can and can't afford. We can afford a Chevy or maybe a Toyota. But a Lincoln or a Rolls Royce is out of our reach.

Maybe so, and then again maybe not. My own experience in deal¬ing with hundreds of real estate borrowers is that often people either exaggerate or minimalize what they actually can afford. It may turn out that you really can afford more, or less, than you think.