It's the Hidden Costs That Can Nail a Budget

The place to start a home renovation project is with your bank statement.

Most people who run into problems don't start with a budget, says John Rusk, in his book "On Time and On Budget: A Home Renovation Survival Guide."

Budget for both the known and unknown costs, such as additional work the contractor might discover after demolishing walls, ceilings, and floors.

Terry and Barry Savage expected to spend $12,000 renovating the basement of their home in West Newton, Mass. Final cost: $20,000.

Their contractor discovered all the wiring needed replacing, and they asked for some extra projects "as long as the workers were already there," Mrs. Savage says.

While that's higher than most, such overruns are common. The simplest approach is to anticipate and account for the extra costs in your budget.

"Most jobs go over about 10 percent," says John Risser, a contractor in Woburn, Mass.

It's also crucial not to overinflate the value of your home. As a rule, the cost of renovation plus the appraised value of your home should not exceed the value of the most expensive home in the neighborhood. Otherwise, you may not recoup the cost of the renovation.

Use these guidelines to set the construction budget, and you then know how much is left to spend on appliances, fixtures, and decor. And when it's time to hire a contractor, you can present a firm plan and not be at the mercy of his design.

While home-improvement projects usually don't pay for themselves at resale, kitchen and bathroom renovations often pay back most of their cost within a year. Other projects return less. Consider the project less an investment and more an improvement in your lifestyle.