Renovating on a budget

After the death of their father in 2019, Amy Mushinski and her sister Dawn wanted to honour his wish that they keep the Scarborough, Ont., home they inherited rather than selling it to a new owner.

Although neither wanted to move into the house in the short term, they came up with a plan to fulfil his request — convert the property into a duplex that they could rent out.

But by the time the renovation got underway last summer, budgeting was paramount. Amid the overall rise in the cost of living, estimates for home renovation expenses were through the roof.

“We had a very tight budget. We didn’t want to take all of the equity out to do the renovation,” said Mushinski, noting she and her sister made many “budget-conscious decisions.”

“We limited ourselves to just under $300,000, which means that we had to make some choices that perhaps people who were going to live in the house wouldn’t make.”

The financial pressures weighing on households from inflation and high interest rates made it more challenging to spend on home renovations last year, according to HomeStars, a Canadian company that connects homeowners with service professionals.

HomeStars’ annual Reno Report for 2023 found that the average household spend on renovations was $12,300, down from $13,000 in 2022 and forecast to fall to $10,264 this year.

It said higher interest rates tend to pressure consumer borrowing for mortgages and other large loans, which are often relied upon for home renovation financing.

Mushinski said because of overspending in certain areas — she was surprised by how expensive door and trim replacements became — she and her sister were careful to find other savings wherever they could. That included decisions to spend less on kitchen design as well as flooring, where they went with vinyl over wood.

As a self-described “penny pincher,” she said she was on top of every expense throughout the process. Still, the pair were around $25,000 over their original budget when the six-month project wrapped up in February.

“Exposing yourself to that kind of financial risk, that was probably the most anxiety-causing part of the job itself,” said Mushinski.

“I was just making sure that I’m going to the cheapest places, I’m shopping the sales, I’m paying cash when I can. All of those things allowed us to do the investment where we thought it mattered a lot more.”

Mushinski added it’s important to make sure your contractor understands your financial limits.

Ryan Meagher of BVM Contracting, the company she and her sister hired, said many homeowners these days are forced to adjust their expectations of what they can afford when they set out their vision for a project.

Often, he said, it’s not until that discussion with a contractor that they realize only 50% to 75% of their plans will be possible to fulfil within their budget.

“We start with everything that they want — give them the budget for that and then work our way down until it fits,” said Meagher, BVM’s business development manager.

“It’s a multi-step process. You need to figure out how much it costs first and then seek out the financing. If the financing doesn’t meet the expectations for how much the project that you want to do is going to cost, then you have to dial back the scope of work.”

While BVM dealt with many larger home addition projects coming out of the pandemic, Meagher said those dropped off in 2023 in favour of smaller scale renovations, especially those focusing on a particular area of the home such as the main floor, basement or bathrooms.

But even minor projects tend to go over budget and it’s important to be prepared for that possibility, said National Bank of Canada financial planner Ravy Pung.

She said the biggest mistake homeowners make before a renovation is not saving enough money, leading to unwelcome surprises when issues emerge throughout the process.

“The client has to be aware that in a renovation, there’s always unexpected costs such as materials, labour and problems once the renovation has started, like mould and leaks,” said Pung.

“Even though they know at first how much it’s going to cost, we always have to budget a little bit more, just to make sure that we cover those unexpected costs.”

Pung recommends financing a renovation through funds saved in a tax-free savings account — which can be withdrawn without paying tax — but said it’s important to have a backup plan in case there’s not enough liquidity. In that case, she said applying for a home equity line of credit could help pay for the project.

“The earlier you save, the earlier you’re protected for not using a line of credit to pay for your renovation,” Pung said.

“There’s inflation, materials cost more now. But what I can say is to try to budget for it right away.”