Your real estate agent will tell you there are three rules to real-estate – location, location and location.
There is a similar rule with understanding the cost of a projects – budget, budget and budget. Yes, the difficult conversation must be had about how much money you are willing to invest. It is a difficult conversation because a good budget is not often the cheapest price; nor is a ‘money’s no object’ a smart way to build.
It is very important to have a budget or budget range in mind before you start conversations with your designers, builders and financier. All three team members will be critical players in the project, but they are not mind readers, and need to know how to provide you with the most appropriate advice.
Here are a couple of common ways to form a budget.
Redraw
The simplest way is to have a conversation with you financier about redrawing from your mortgage. This works well for smaller projects like new kitchens, bathrooms and outdoor living areas. This is a good option if you are not intending to move on and you are going to stay. Talk to your financier to understand what repayments you can afford to make with the income you have available.
Local Comps
A simple way is to determine how much bang for your buck you can get is to look at resale values within the local property market. Commonly known as ‘local comps’, this is the difference between your current value of property and the common value your property could get after completing your building project.
Example. Current property Value $750,000, Maximum resale Value $1 million = Potential budget of $250,000.
Hope this blog has helped, but you are always best to talk to your financial planner for advice of how to set up a budget to meet the cost of your building project.