The Bad News
First the bad news: There are no no two ways about it, renovating a house is expensive (either time, money, or both). Given the number of variables, it is impossible to give a ballpark figure without individually inspecting the specific property. Depending on the following conditions, gut renovations generally cost anywhere between $40 per square foot and $140 per square foot. The big variables are, in no particular order:
- Sweat Equity – Hiring a contractor is more expensive than doing work yourself
- Finish Level – Granite counters versus laminate, vinyl versus marble
- Kitchens and Bathrooms – These are the most expensive spaces per square foot
- Structural – Fire and water damaged structures are relatively expensive to repair
- Masonry – Rebuilding walls and tuckpointing are relatively expensive
- Custom Restoration – Historic features like carved wood handrails and plaster crown molding are difficult and expensive to restore or replicate
The Good News
Here’s the good news: there are plenty of people out there who want to help you finance your project if you have decent to good credit. Banks continually improve their loan products to take advantage of the purchase-rehab market.
Some banks that St. Louis renovators have had good success working with include:
A popular loan product in the St. Louis market right now is called the 203k purchase-rehab loan. The loan amount is based on the estimated after-improved value of the property. Money for renovation is put in an escrow account and released to contractors as they complete work.
Interest rates are typically higher on all types of construction loans. Renovators usually finance the renovation with a purchase-renovate loan or a construction loan and then refinance into a fixed or ARM with a lower interest rate. Often certain components of the renovation (a third floor for example) can be put off until after refinancing - the equity (hopefully) developed through the renovation can be leveraged to finance additional work.
If your property is located within a designated historic district, your project may qualify for historic tax credits. The tax credit application is certainly not rocket science, but it does require significant effort and may prove frustrating for people who are unfamiliar with the process. There are people who specialize in preparation of historic tax credit applications for a fee. Your architect may also provide this service.
Many lenders will require a professionally prepared set of architectural drawings as part of the loan-making process. These drawings help the lender establish the estimated after-improved value of the property and help the owner get comparable bids from contractors. See the “Architectural Design” section for additional information.
Construction Estimate Excel Worksheet - Download a Microsoft Excel worksheet for developing a construction budget. This worksheet takes potential State Historic Tax Credits into account for projects that qualify. [To download this file to your computer, right-click the link and choose "Save Target As..."]
