Thinking about renovating your home or flipping a fixer-upper? Home improvement looks effortless on TV, but in reality, unexpected costs can quickly drain your budget and turn your dream project into a self-inflicted nightmare. In this video, we break down the hidden costs of home renovations and show you how to avoid costly surprises BEFORE they happen.

If you’re looking to save thousands, prevent headaches, and remodel successfully, there are three essential steps to follow before you begin:

1. Know what you're buying.
2. Know what you plan to do to it.
3. Know who can get it done.

Let’s break these down.

Step 1: Know What You're Buying

If you already own the property, hopefully you conducted a survey to clarify boundary lines, easements, and encroachments. You should also have completed inspections with a licensed professional to assess the property's structural and mechanical condition.

Structural Considerations

A thorough evaluation should cover:

• Foundation and underground structures
• Roof, walls, windows, doors, and floors
• Code compliance and necessary repairs

Mechanical Systems

Inspectors should assess plumbing, electrical, and HVAC systems to confirm they are functioning properly and free of hazards. Some investors or contractors think they don't need a professional inspector, but even experienced investors and contractors can benefit from an inspector’s tools, like thermal imaging and airflow measurement (CFMs), to spot hidden issues. While CFMs may not seem like a concern now, the next buyer’s inspector will check it—and if the system isn’t performing adequately, you’ll be the one covering the cost to fix it. Additionally, consider a radon level measurement, as high levels can impact a buyers financing options.

Investing in inspections early can prevent thousands in unexpected costs. For an in-depth look that goes beyond the inspection report, check out 10 Surprises to Avoid When Buying Fixer-Uppers.

The results of your due diligence will serve as the foundation for developing your scope of work, where you'll outline your renovations from start to finish. However, initially, keep the goal clear—you must fully understand what you're buying to avoid hidden costs. This means relying on facts, not assumptions, guesses, wishful thinking, or hearsay.

Step 2: Know What You Plan to Do to It

Once you understand the property's condition, the next step is defining your scope of work—a detailed, room-by-room plan outlining your renovation objectives.

Creating a Scope of Work

• Document the project start to finish.
• Seek bids from multiple contractors to compare pricing and feasibility.
• Ensure your budget aligns with your renovation goals.

Your budget likely has a cap, so you may need to adjust your scope, come up with more funds, or find contractors with better rates to arrive at the results you can afford. Without a clear plan, scope creep can quickly escalate costs and extend timelines. A well-defined scope helps you make informed financial decisions and stick to a reasonable timeline.

To streamline estimating costs, check out Phil’s video on Estimating Rehab Costs Like a Pro.

Budgeting for the Unexpected

Understand the property and have a clear plan before beginning your renovation. However, no matter how much research and preparation you do, unexpected challenges are inevitable—they’re simply part of the process. To safeguard against costly surprises, it’s always wise to set aside an extra 20% in project costs. Keeping this contingency fund readily available ensures you won’t find yourself unable to complete the work.

Step 3: Know Who Can Get It Done

Finding the right contractors is one of the most crucial aspects of a successful renovation. The wrong hire can lead to delays, cost overruns, and frustration.

Choosing the Right Contractor

1. Seek referrals and verify references.
2. Get written agreements to clarify scope and costs.
3. Sharpen your negotiation skills and understand the psychology of effective communication—because keeping your renovation project on track often requires a little verbal judo.

A great way to prepare is by checking out Phil's viral video, 7 Things to Never Say to a Contractor, where you'll gain insights into handling contractor conversations with confidence and strategy.

Managing Contractors Effectively

By following these steps, you’ll have a detailed scope of work and bids from qualified contractors, clearly outlining material and labor costs. This level of clarity ensures your project is well-defined—even down to the paint codes. However, some contractors thrive on change orders, using them as an opportunity to introduce costly adjustments that can derail both your budget and timeline. That’s why it’s crucial to make everything crystal clear upfront:

• Differentiate labor and material costs upfront.
• Reimburse materials based on submitted receipts and pay for work as completed rather than large lump sums.
• Inspect work regularly and ensure punch lists are completed before final payments.

A common mistake homeowners make is paying too much upfront. Home renovation horror stories are full of homeowners who prepaid for half of the job, only for the contractor to abandon the project entirely. Worse yet, some unscrupulous contractors even file mechanic’s liens against the property, demanding payment for the unfinished work they never completed. Avoid falling into this trap! Contractors should always owe some work, rather than you owing them money for unfinished jobs.

Renovation Project Management

Once you have the right contractors, your renovation will require management throughout. If you hired a General Contractor (GC), they’ll coordinate subcontractors and materials as part of their fee. Otherwise, you can hire a project manager or take that role on yourself. But be prepared to dedicate your time to oversee the project. Renovations demand daily decisions, time commitments, and oversight. Even with a General Contractor or project manager, you must be prepared to manage the manager, because no one cares about the outcome more than you.

Key Takeaways

Before tackling a fixer-upper, ensure you:

1. Know what you’re buying
2. Have a clear plan for renovation
3. Work with the right contractors

If you're preparing to take on a fixer-upper, it’s essential to have a clear understanding of what you’re buying, a defined plan for renovations, and the right team to execute the work. Without that clarity, do not close the deal. The goal is to achieve the results you want, within the timeframe you need, while staying within budget. Home renovation is not for the faint of heart, but it can be incredibly rewarding when approached strategically. If you take the time to learn the process with the right guidance and follow these critical steps, you can minimize rehab headaches and steer clear of the hidden costs of home renovation.

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