Calculating the Budget for My Dream Kitchen Renovation

Now that I've decided to open up walls, it's time to grapple with the budget for this renovation. When I renovated my Brooklyn kitchen back in 2006, I'd just sold my previous home and rolled over the equity into the new place. I was feeling flush, so I'm embarrassed now to say that I didn't set a budget. Rookie mistake!

Though I still love the way that kitchen looks today, in retrospect it was a risk. When, four years later in 2010 I found myself laid off from my job, selling and downsizing wasn't really an option. The market hadn't recovered from the financial collapse of 2008, so if I sold, I'd take a small loss. I had fallen into a trap that many newbie renovators fall into: I had "over-improved" my home compared to neighborhood comparables. I learned that bank appraisers don't discriminate between a low-end renovation and a high-end renovation. Your kitchen can boast all the euro cabinetry and pro-grade appliances you want but renovated is just renovated and your home will get no additional valuation for high-end. It turned out alright in the end. I was able to hold onto the home until the market picked up again and I actually turned a profit, but it could have been an expensive lesson.

So, how does THIS home stack up?

Well, I was very lucky to purchase a fixer-upper at a fixer upper price.

The previous owner had listed it as "renovated with granite kitchen," however, a wall of mirrors in the living room was turning off buyers, pet damage had ravaged the hardwood floors, and the bathroom and kitchen "updates," such as they were, had been done on the cheap.

I saw through the cosmetic issues and knew I was looking at a bargain. We ended up purchasing the place for $265k at a time when comparable 2-bedrooms were going for in the $350s. I spent about $40k before we even moved in, gut renovating the bathroom, refinishing the floors, replacing the mirrors with built-ins, painting, updating lighting, and window treatments and giving the builder beige galley kitchen a low-cost makeover.

So, what would our home sell for today?

If we do nothing more to it, we could list for at least $580k — comparable to this listing currently on the market in our neighborhood.

Via StreetEasy

Or even as high as $615k — comparable to this listing.  Both listings boast a foyer, doubling as a "formal dining room" similar to our layout. The galley kitchens both have similar level renovations, however, the other bathrooms don't approach our marble upgrade. In addition, our building has indoor parking — a real plus in this increasingly car-crowded neighborhood.

Via StreetEasy

Both comps have staged the foyers as a "dining area" — a clever tactic of realtors in the know — and I would frankly do the same. My floor plan would look like this:

Going one step up, were I to renovate our galley kitchen without even changing the footprint or knocking down walls, we could ask a bit more. Our sale would then be comparable to this listing currently asking $650k.

Via StreetEasy

A reno that doesn't change the footprint is less costly, but still requires demolition, framing, lighting, electrical, plumbing, floors, cabinetry, fixtures, backsplash, and stone countertops — and that would run about $40k. But that $40k would be more than covered by the equity we have in the home, even taking in the cost of the bathroom renovation we did before we moved in.

Purchase price: $265k
Bathroom reno and other fixes and updates: $40k
Total so far: $305k
Galley kitchen renovation: $40k
New total: $345k
Asking $650k
Difference: $305k

One step up again: How would my open concept dream kitchen fare? What would be the resale value on that?

There are not very many open concept floor plans in this neighborhood. Even renovated homes tend to retain the original galley footprint. Here's a listing in our neighborhood that does have an open concept kitchen, asking $750k. Even with this sad builder-grade reno it's asking a full $100k more than a similar home with a renovated galley kitchen. And just look at that tiny "study" they're calling a second bedroom. You can bet I'll be following this property closely to see if the seller gets asking price.

Via StreetEasy

Opening walls would double our kitchen size but it would also double the cost. Not only would the demo be more extensive, a kitchen double in size requires more cabinetry and additional stone. Tack on high-end appliances and the costs could easily run as high as $80 to $100k.

The final outcome would be fine, indeed:

Purchase price: $265k
Bathroom reno and other fixes and updates: $40k
Total so far: $305k
Open concept kitchen renovation: $80k
New total: $385k
Asking $750k
Difference: $365k

If my projections are correct, our renovation this time around would be a less risky proposition than my Brooklyn renovation 11 years ago. Should the real-estate market see a major downturn, we'd still be rightside up on our investment. Not that we're looking to sell — I should emphasize that. We're very happy living in "The Jax," a 30-minute subway ride from Manhattan. And the parking amenity we have in this building is a rare find and improves our quality of life immensely. Imagine coming home from summer weekends at the cottage and having to circle endlessly for parking before slogging our belongings upstairs. That would take the joy out of weekends in the country, for sure.

The fact that we expect to be living in our home for a very long time and are not interested in selling makes me even more convinced we should renovate now — and spend the years to come living in and enjoying our renovation — am I right?