Budget your new home build and renovation project

Do you have enough money to complete your construction project?

Many people start constructing their new house, or renovating their home, with great excitement, only to find that they run out of money before they can complete construction. What a disappointment to be left with a half completed house. But it is often more than disappointment. Money problems often leads to other problems. There's stress, marital problems, and in the worst case banks can seize properties which were held as surety against loans. Yes, that's right, people have even lost their partially built home, or even the house that they're currently living in.
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If you're able to survive the money issues, and the worst case the project is only delayed until your money situation improves, then their are often additional costs to complete your project. These costs could include employing another contractor to take on the half completed project. Often this could mean that warranties on work already completed is lost. During the delay your project could have been damaged by the weather or even vandalised. Then there could be additional costs of paying rent to live elsewhere, council rates, security and insurance, cost of restarting the project, etc.

Reasons why you could run out of money before your home is complete

Many people run out of money because they did not allow for all the costs. In  Have you allowed for all the costs of your new home build?  Part 1​ and  Have you allowed for all the costs of your new home build? Part 2. we looked at the costs to allow in your budget.

Some times people have not looked at what their contractor priced, and then are surprised to have to pay extra to get features they thought were included. See ​Checking Your Contractor's Price (Quotation)  and  Read This Before Selecting Your Home Renovation and Building Contractor. and What’s included in your builder's price (or excluded)

Sometimes projects hit unexpected snags or problems Questions to ask before starting a home renovation, or building a new house

​Then sometimes you have enough money for the project, but you don't have it right now to pay the bills. This is called cashflow problems which we look at in a future article.

Preparing a budget for your home renovation or new house

Budgets involve not only what the project will cost, but also when these payments are due. It’s important to understand the construction schedule as well as the payment terms of all suppliers and subcontractors. (Read about cash flow later.) Late payment could lead to work stopping, supplies of materials being cut off, and you could incur additional costs, including losing discount provisions and incurring interest payment charges.

The construction and other project costs are paid from money you have in the bank, money from the sale of assets (like another home) and payments from bank loans. It’s important to understand when these funds will be received. Funds from the sale of assets can take time to be received and these transactions frequently take longer than envisaged. Of course, there’re often pitfalls along the way, for instance sales could fall through even after everything appears settled. Banks seldom pay loan funds out as a lump sum at the start of the project. The release of funds usually depend on the project reaching particular milestones and on the quality and progress of the project being checked by the bank’s representative. Banks may also require to see copies of insurances, invoices, permits and contract documents before releasing funds. It’s important to understand all the conditions relating to the loan. Inevitably there will be delays in the process and bank holidays can play havoc with your best laid plans.

But equally, it’s important to understand what other costs will be incurred. There are the usual costs of managing your monthly household bills, but invariably there’ll be unexpected costs, such as illness, cars breaking down, unexpectedly high bills, and certainly your monthly costs will increase with time.

In addition, there’ll be additional project costs that weren’t allowed. There will be some changes and variations.
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It’s important to accurately calculate the project costs, including all the items discussed in the next section. These costs should be regularly checked and as the actual costs come in the numbers should be updated. Once the project starts it is good practice to update the budget every week. This involves ensuring that all suppliers and contractors submit their invoices and variations regularly and that you make allowances for those invoices and variations which you haven’t received.

A good budget is essential for your construction project

Preparing an accurate budget at the start of your home renovation or construction project, a budget that allows all the costs, will help ensure you don't run out of money before your house is completed. But, more than a good budget is needed. You must continually update your budget as the project proceeds. There will always be unexpected costs, both additional construction costs, and your daily living costs. Regrettably things do go wrong and circumstances can change. Continually updating your budget will allow you to make timely changes should it become apparent that you could run out of money before the project is completed.

​This is an extract from the author's book 'An Introduction to Building and Renovating Houses: Volume 1 Hiring Contractors, Managing Construction and Finishing Your Home'.

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​Paul Netscher has written 2 easy to read books 'An Introduction to Building and Renovating Houses - Volumes 1 and 2'. An Introduction to Building and Renovating Houses Volume 1 deals with Hiring Contractors, Managing Construction and Finishing Your Home.  and Designing your ideal home Volume 2 deals with Finding Your Ideal Property and Designing Your Dream Home. 
​("Great for those that DIY. Very helpful in home renovations!" said a Reader on Amazon.com 5*****)
These books are available from Amazon and other online bookstores in paper and ebook.