Home development can increase the value of your property, and turn your house into a sanctuary. However, the development journey can be an unpredictable one, especially for those who are undertaking their first project.
An affordable budget is one thing, but what about a contingency fund? Here’s what you need to know.
What Is A Contingency Fund?
A contingency fund is different from going over budget. It refers to money that is set aside in case of any unexpected costs. These include factors that are outside everyone’s control.
For instance, contractors being forced to close due to Coronavirus and the now nationwide lockdown can have an impact on the overall trajectory of an installation. Contingency funds are in place to ensure that external variables do not cause a project to fail, just like a financial safety net.
What Is Overspend?
Overspend refers to the deliberate choice to spend more than the original budget. Typically, overspend relates to aesthetic or material choices, such as spending more on a bathroom or kitchen fittings than planned. There are many legitimate reasons for the overspend.
For example, the value of a property might be exponentially increased with strategic design choices, such as investing in sustainable technology. Therefore, it is always worthwhile expecting some elasticity within the budget.
How Important Is A Contingency Fund?
Property development can involve a lot of unplanned considerations, even when working with the most experienced companies. While the majority of installations are achieved according to the original plan, surprises can happen. The older the property, the higher the potential for this.
As such, consider a contingency fund to be a necessity when planning your project budget. If it’s not required, those finances can be invested elsewhere, or on a holiday when your home is finished!
How Much Should I Set Aside For The Contingency Fund?
This really depends upon the type of property. For a newer building, 5% of the total project cost is recommended.
If there are site breakages we would not expect the client to pay for this. Generally, we have a 7% contingency for refurbishments, and a good specification from the outset generally means this is adhered to and not increased.
Even the best surveys cannot reveal all of the secrets hiding under the brickwork. When completing a heritage restoration, expect to stumble upon a few surprises, including the need for specific materials.
At the end of the day, contingency funds are about putting the power and control in the hands of the client. If a problem arises, a pocket of funds means that decisions can be made in an informed and focused way, as opposed to being forced to select the cheapest option.
In the long run, this strategy pays dividends because it means that the development is based upon reasoned planning rather than quick fixes.
Financial planning is the cornerstone of successfully fulfilling your dreams.
For advice about how to organize a realistic budget for your luxury home ideas, please give us a call today.