How do I develop a budget?
There are a few techniques you can use in order to develop a general budget for internal use before you start speaking with contractors. The two primary techniques are a square foot price and a line item price.
The easiest method of determining the cost of a new build or renovation is a square foot price. To get your square foot price, you can either use previous contracts and square feet or Google the phrase “square foot price for renovation in [name your city]”. You will get a wide spread of prices from Google, so check several sources to get a solid square foot price. Quora.com, Bigger Pockets and Home Advisor also have quite a lot of information on pricing. Also, make sure you keep quality in mind as this will make a huge difference (see our post “What Type of Contract Should I Use” and the section “Quality” for details on this.
Square foot pricing
In Washington DC, a home remodel for a fix-and-flip will be between $200-500 per square foot. The kitchen and bathroom might cost you $600-800 a square foot but the bedrooms might be $50-100 a square foot. If you want contractor-grade material and with major electrical upgrades, you might be at the $200 range. If you want nicer materials and to upgrade the electrical (which will probably require going down to the studs), you will be closer to the $500 per square foot price.
In Richmond and Northern Virginia, a tenant fit-out run $65-85 per square foot. This is for moving some walls, minor kitchenettes and new finishes (doors, paint, carpet and drop ceiling).
You then take your square foot price and multiply it by the square foot of the area to be renovated. Do you have an office fit-out in Arlington, Virginia that is 4,700 square feet? Budget $352,500 (I took $75 which is the mid-point of $65-86 and multiplied it by 4,700). If you need a Not to exceed price and you use this method, add 25%. So in high-level budget talks, know you want to spend about $352,000 but it may go up to $440,625 and may be as cheap as $264,375.
From $265,000 to $440,000 is a fairly large spread; however, this does tell you that this isn’t a $50,000 and it isn’t a $500,000 build. You may need to add more money if you need a new roof or a new HVAC system, but you can do the same unit rate pricing for these items. Within 30 minutes to a few hours, you can have a high-level price and use that to determine if you should proceed with digging into the details.
Do not accept high-level pricing like this for complex projects (please see our Post “What Type of Contract Should I Use” under the section “Cost Risk” for how this is defined). A square foot price is fine for replacing a roof, replacing the floor or painting a space. It might also be good for a contractor-grade bathroom remodel in a fix-and-flip. But, you should not except a square foot price for renovations, re-fits and greenfield builds.
Line Item Pricing
Once you have gone through the square foot excercise, it’s time to start going through line item pricing. Quora.com, Bigger Pockets and Home Advisor are still your friend for this excercise. CSI Codes can also be a guide for you are they are a logical breakdown of every part of a job (please see our Post “What Type of Contract Should I Use” under the section “Cost Risk” for how this is defined).
Instead of a blanket square foot price, you are now going to go into details. Let’s say you want to install new wood flooring for a 2,000 square foot space. Using the resources above, you know the labor portion is $3.00 per square foot. You have chosen the flooring you want (in this case, the Bruce American Originals Natural Red Oak 3/4in.) which sells for $3.49. Add 10% for wastage and 15% for accessories (nails, felt paper, etc) to give you a material price of $4.36. Add 15% for the General Contractor costs and markup to the total cost. Your cost per square foot will be $8.46 ($3.00 + $4.36 = 7.36 and the 15% markup) multiplied by 2,000 square feet; you can assume your cost will be $16,920.
You should expect your cost to be plus or minus 10% of this cost.
There are numerous online resources to give you pricing guidelines.
Use a total square foot price to get a general idea of what the cost will be to determine if an in-depth cost budget should be developed. Unless the project is simple, do not accept a square foot price from a contractor.
In order to develop a full budget, do a line-by-line breakdown of everything you need done on your job. CSI codes are invaluable for this excercise as they will give you a logical breakdown to ensure everything is captured.