speaker-0: It always starts with diagnosing the problem and developing real goals before you ever start designing anything, knocking down walls, trying to buy material. Yeah. That's always step one. You know, going through that systematic process of how to think, how to actually analyze the property, what to ask yourself. You know, where am I? Where do I want to be? What is the problem? How do I correct the problem? Don't limit yourself just to the finish aesthetic. And this is like a universal thing. It doesn't matter if it's your personal home, if you're an interior designer, if you're a real estate investor flipping a property. Like, don't start making any type of renovation or design decisions until you understand what the goal is. Welcome to Return on Design, the podcast where beauty meets strategy and interiors become assets that perform. I'm your host, Rachel Niederhofer, designer, investor, and builder of high-impact spaces that deliver real results. Alongside my husband, I run both a design firm and a real estate investment company, where I live at the intersection of creativity and ROI every day. Each week, I'll be unpacking what most people overlook. How strategic design decisions can grow your investment, elevate your lifestyle, and unlock the full potential of your property. You'll get real tools, proven strategies, and unfiltered conversations with industry experts who are doing it right. So if you're ready to invest with purpose and leverage design as a powerful tool, this podcast is for you. Welcome back. Today we are going to talk to you about why renovation budgets tend to explode and how to stop that from happening. Oftentimes, you know, it's not one major thing that goes wrong that makes budgets get way out of hand. It's like lots of small things being made over time that before you know it, your budget is completely blown and That is a pain point nobody wants to experience. Yeah.

speaker-1: We'll talk about the tools that we use when evaluating projects so that we budget correctly, adequately, and stay on t on budget.

speaker-0: Yes. Okay, so real, real life here. Like, why do renovation budgets spiral? And even new construction sometimes. Like this happens more often than not. And nobody likes that awful sticker shock at the end of a project. So let's walk through, you know, primary reasons why this happens. I would say number one is definitely scope creep. So if you're adding things to your renovation project or your new new build and it just keeps you just keep adding, keep adding, keep adding, I mean, you are just adding that's like dollar science.

speaker-1: It and it's it's something that happens a lot. We've seen it with ⁓ a lot of clients. We've we've seen it in projects like, Well, I'm already here, might as well.

speaker-0: Yes. Or, you know, and we've talked about how so many times about how you never really know what's behind something until you start taking walls down. And that in and of itself is where a lot of spiral can happen. Because if you don't have that forethought ahead of time that like, we're gonna plan for this, but we need to we need to put this buffer because once we take this wall down, there could be water damage back here, or there could be You know, prime example, we fixed a shower recently that there was a visible leak in in the the shower, like by the door. It's coming onto the baseboard. And so we knew, okay, once we start taking this bad boy down, there's a possibility that there's more damage that we can't see on the surface. We we got it all straightened away. But point being is, you know, if you're not if you're not padding that, so to speak, with the possibility of the unknown. I mean, you can easily start, okay, great. Well, we gotta fix this. We gotta add this, do this.

speaker-1: And to take that one step further, it looked like it was a simple, ⁓ I have a leak point here. Well, as we started to dig into it, no, it the problem was actually a whole lot more. So instead of being able to repair the leak, we actually had to gut the entire shower and redo the entire thing. So that's where that scope creek kind of kicked in or not planning for, you know. Fortunately we had the conversation.

speaker-0: Yeah, and that's almost like a mechanical failure scope increase, right? Like you've we've got to fix this. But another aspect of scope increase is like, you know, I really wish I had another light fixture in here. Let's just add it. Let's just add that. Or, you know, I I was only gonna tile the backsplash up to the vent hood, but now that I see it, let's just go all the way to the ceiling. You know, so you're you're making decisions based off of one viewpoint that maybe. Isn't in alignment with what your original budget could afford. And now, whoo, scope increase. If you get a nice big fat bill after all that tile tile gets applied, but that's just an example, right? Yeah. So yeah, like mm keeping that emotional momentum in check and making sure you have a threshold of why we're making decisions to increase scope and understanding that that happens because sometimes. people will add on stuff and it hasn't been articulated that that's actually gonna cost you more money. Yeah. Okay. What's another example of classic trap people fall into where things start to spiral when it comes to budget? Yes.

speaker-1: Late decisions. Making that that last minute change, the kind of along the lines of the scope creeper, you know, let's let's just keep going, let's keep adding. ⁓ being able to stop those late decisions helps to keep you away from rush rush fees, rush orders, or even delays that compound. ⁓ I've got I I decided to add this. Well, I've got to wait for it to get here. Well, that pushes this guy back, which then pushes the next guy back. All in the while stretching out how long your budget is actually being pushed and and causing causing more headache.

speaker-0: Yeah. And sometimes it can seem very innocent, like, you know, I want to just hold off for a moment because I, you know, need to, I don't know, evaluate this space better for myself or or whatever the case is. And to your point, you stop the momentum of a project, there's a ripple effect. And that can cause more money to to have to add into the equation. And Yeah, people don't factor for that. I'm trying to think of another good example to give around quick changes. If you change material really quickly at the last minute, paint color changes. You know, as a designer, I can sometimes fall victim to this because designers, when we see something unfolding, if if we need to pivot, we're we're prepared to pivot. But you can also put yourself in a situation where if you're not careful, that pivot is way too last minute. You haven't thought about the ripple effect of the cost associated, and you're actually costing your client more money. And it could be detrimental. That is why having a designer that understands construction is so important. Another example around that specifically, I just want to linger on this topic for a second. You know, let's say you have somebody that helps you pick out tile selection for a bathroom, and you haven't communicated the application of the tile. So Let's say we have a standard wood plank floor. And in the foyer of the house, we want to do a herringbone pattern. So we have a nice, beautiful statement right when you walk in. It's gorgeous and all the things. Well, multiple things can happen there. If you haven't communicated the herringbone, that requires more cuts. It's a more labor intensive process. So with more cuts, you have to make sure you have the right material, the right volume of material. And with the labor, you gotta make sure you're budgeting and communicating to your tradespeople and to your client, like this application's gonna cost you more money. And yeah, it or if you if your plan wasn't to have the herringbone initially, and then you wanna make that last minute change and say, ⁓ you know what, we're gonna put herringbone in the foyer. Well, again, did you account for the material required to do that? The labor spike. required. And so it's little things like that that you can get emotionally wrapped up in the beauty of the aesthetic of what it could produce. And before you know it, here goes your budget creeping up, creeping up.

speaker-1: Okay. Well w what would you say the next, the third, I guess, big thing that kind of creeps your budget?

speaker-0: Over customization. That's right.

speaker-1: This one gets this one gets into a lot of people.

speaker-0: It does. Which is kind of similar to the narrative of like the herringbone example, right? But let's say let's take cabinets as an example.

speaker-1: Cabinets I think is a good one where you can really millworks. Yes. Millworks, I think, more so than even just the cabinetry, but it I think they go hand in hand is where you can really get into that over customization and really get

speaker-0: Start eating into your budget. Yeah. So let's take the millwork detail on cabinet application. You know, there's so many different ways you can design cabinets, cabinet doors, the the feet, the w just the whole visual aesthetic. And you're not really modifying the structural foundation or the function of it, right? It's it's purely becoming aesthetic at this point. It's it's a stylistic feature that. Can start to really creep in and blow budget. Let me give a few examples. So let's say you want like ordinate molding around your shaker door cabinet, just to inlay, add another, you know, layer of of detailed beauty to the finish look. ⁓ and you it it's a last minute thing. Like you see the shaker app, you see the shaker door installed and you're like, ⁓ I love it. But I saw on Pinterest. that there was this cabinet and it was a shaker and then they took a piece of millwork and they applied it on the inset part of that shaker and it really elevated the look of the door. And they're like, yeah, that's great. We can do that. No problem. And so here you go. You bought more material. You added in more labor. That's also going to trickle into your painter, what the painters were required to do to prepare that door to be painted. And before you know it, budget creep, budget creep. And that could fall into over customization because it didn't It didn't that decision did not affect the functionality or the original form. Like you're not adding more square footage to it.

speaker-1: It didn't just affect the cabinetry. It also affected the next piece and the piece after that. So the cost it's not just a one-for-one cost additive. It was it's a mul there's a multiplication effect sometimes when you start getting really ornate customers.

speaker-0: Yes. That that's a great way to articulate it because it's you know, we we have a client we've been working with and we had to reduce a portion of the custom cabinetry that we were putting in the house. It was in the original design, but once we went to scope out from a budget perspective, that was an area we had to reduce to stay within our budget. And it wasn't just the cabinet fabrication alone. Yeah. We were reducing our paint also. So it was cabinet fabrication, install to paint it, the whole finish application. And it, if you don't take all of those things into consideration and you're like, yeah, you know what? I wasn't originally going to do this massive built-in in my office, but now I am. So let's throw it in there. And they're like, great, sure, we can do that. Well, they haven't articulated that you're you're paying for more than just the extra cabinet. Yeah. And that's a classic way to get into that. You know, eat into the budget beyond. Get the budget to explode beyond what you originally

speaker-1: Also, you know, to take that thought one step further too, but when you start getting overly customized with ⁓ details and things like that, you've all you're thinking about your return on design, right? Getting super custom in the long run can actually reduce some of the buyer's appeal for whoever's gonna come in and buy this next, this investment next. True. If you're investing into a property to try and sell it. you're reducing the number of people who are probably actually going to really want it because that's just not what I want as a buyer. Yeah. And then if it is is if when it is your home, but it's time that we're gonna we've decided let's go build a new home. Let's go do this. Well some people still may not love every detail that you loved in that.

speaker-0: Yeah. So keeping that in perspective. Like if if you do want to go to that over customization route, you need to have that in your original plan and your original budget. And understand that on the back end, yeah, you may not get the the same return. Okay. So now we've told you all about, you know, the traps people fall into. These are there's more traps, by the way, but these are probably the most predominant things that eat into people's budgets and overwhelm them with added expenses that they weren't planning for. So but like what do you do about it? Like you're like, yeah, great. You told us a problem, but like what do we do?

speaker-1: Okay, well you've gotta have a blueprint for how you're strategically set allocating that budget.

speaker-0: Yes. And that's what we do. That is part of our return on design process. And we have developed, you know, a roadmap available to help equip people walk through these decisions. And it always starts with diagnosing the problem and developing real goals before you ever start designing anything, knocking down walls, trying to buy material. Yeah, that's always step one. You know, going through that systematic process of how to think, how to actually analyze the property, what to ask yourself. You know, where am I? Where do I want to be? What is the problem? How do I correct the problem? Don't limit yourself just to the finish aesthetic. And this this is like a universal thing. It doesn't matter if it's your personal home, if you're an interior designer. If you're a real estate investor flipping a property, like don't start making any type of renovation or design decisions until you understand what the goal is. That is step one. Can't emphasize that enough. Okay. Step two is what?

speaker-1: Identify your impact categories. Where am I going to get the biggest bang for my buck? You know, you've heard it a million times. We've even said it. Kitchens and bathrooms are high impact areas in homes. They just that's something that everybody looks at when they're going into a home. What does my kitchen look like? What does my master bathroom look like? You know, is it what I want? Because those are areas where we

speaker-0: Hmm. Tell me more.

speaker-1: Just get get things in life ready, you know, preparing meals, spending time as a family, getting ready for ourselves for our daily routines. Yeah. You know.

speaker-0: And I want to highlight what you said. Is that what I want? Because you can't identify your impact areas until you've identified your goal. And you can't identify your goal until you've learned how to diagnose and evaluate the space. So once you've done that, you've identified a goal. Now you can actually step into okay, well, how what are the biggest impact areas associated with my goal? Everything is still pointing back to what am I actually trying to accomplish here? has to have more depth than just I want a pretty space.

speaker-1: Okay, what would be the next one?

speaker-0: Okay, next thing would be, you know, that that strategic fund allocation. So we've identified the goal. We've talked about high impact areas. And the next step is, okay, well, how do I actually take the budget and allocate it to, you know, hit those high impact areas that are going to optimize me reaching my goal?

speaker-1: Yeah. But you know, and it's not just, okay, I have a budget of fifty thousand dollars. Okay. What gets intentionally pri intentional priority within the budget? ⁓ the floors have got to be fixed. Okay, that's a high priority versus

speaker-0: And a lot of times that like identifying the priority is rooted in the pain point. So for example, we did a house recently where they had problems with the windows, like actual mechanical problems. They were leaky. They were they were not doing the job of a window.

speaker-1: There were old windows that had really kind of lived their use use

speaker-0: Yeah. So not only were they limiting the natural light and affecting the design aesthetic, they were just not performing. So we knew right away, like in terms of allocation, you we have to replace the window. And that that will help you when you go through the process of identifying, you know, problems, pain points to help with that fund allocation of like.

speaker-1: Precedent pretty quick.

speaker-0: Where is where am I gonna get the most pain for my buck? Where should I put these resources? So in that example, we knew, okay, $20,000, windows. Immediately take that off the budget. Now your pool is getting smaller and you basically go through the process again and again. Well, now I went from what was the original amount? 50,000. Okay, so now I'm down to 30,000. How am I going to allocate this $30,000 strategically? Go back to the pain point. What's the biggest pain point? what's the biggest impact and go from there. So it's it's it's a repeatable process that you continue to go through.

speaker-1: Just walking out each step and saying this one has to go, this one has to get fixed. Okay, what's next? And and prioritizing your your list of you know, yeah, I want to do everything, but there's certain things that have to be done and certain things that take more priority. So what gets the priority? What gets, you know, I guess baseline or mid-level fix, and then what what needs to be saved and reused.

speaker-0: Which is exactly how investors should be approaching their fund allocation. So just a little investor plug for a minute. After you've evaluated, you know, the whole property. What's my ARV? What's it gonna cost to fix this? Well, now go even that extra layer of strategically allocating that fund. Cause you kind of did a general what's it gonna cost me? But now what is that intentional? allocation that's really gonna maximize my investment. Mm-hmm. Yeah.

speaker-1: And but that's not just for investors. I think that's homeowners light too. If you're if you're remodeling your your home, you you go through the same thing because that's what we do with our clients. You know, yeah, I would love to replace all the doors inside the house, but you know, I'm getting stretched on that budget. They're really not bad. And fresh coat of paint on ⁓ that really dress them up and ⁓ and they're they're still good. You know.

speaker-0: Yeah. We Yeah. Yeah. So good. That's like a whole nother talking point of why you need good designers in your life to help you make some of those decisions. And that's why we're here for you. Cause yeah, you know, I think we did an episode about like replace or repair. So go back and listen to that one.

speaker-1: Yeah. The next one I would say would be setting a contingency. You know, yes, I said I have a budget of fifty thousand. Is there room to stretch it if needed be? Or is it is it a hard fifty? And I think you got to set that contingency because especially when you're doing remodel, repair work, you get into things and we've talked about it before. You don't know how bad it is until you get into it. Sometimes, you know, I open that wall. There was that there was a leak here. You know, there was that leak on the roof that didn't get repaired in time. And now it's dripped down, and I've got a whole lot more issue in this wall that I've got to fix, or that shower was leaking, or, you know, you you name it. There was an issue. And now now it has to be fixed.

speaker-0: So what's a safeguard contingency you would recommend?

speaker-1: 10% minimum. Yeah. If you can, 20. And that's just because sometimes those those repairs, when you get into that, you open you do open that wall up, you don't know what you're gonna find. And that cost can multiply. Because, you know, ⁓ I tore out a wall that had some old. Okay, now I've got to kill it. I've got to put it back up. You know, you're you're adding labors, you're adding materials, and and those costs multiply up.

speaker-0: Yeah. Yeah. So just better

speaker-1: I know back in in my corporate world, ⁓ workings, it was always at least a ten percent contingency plan factored into the budget.

speaker-0: Mm-hmm. Gotta pad that budget.

speaker-1: Gotta make sure you s you always account for the what if.

speaker-0: But that's that's good to know too. I mean, as you are personally going through the process, whether you know, homeowner, designer, disor, like you should have the forethought of of being prepared to pivot if you need to. Because things do happen, things arise, things shift, even as a even in a new construction, you know, there are times when I have to change material because something's back ordered so far. that I would be, you know, way slowing down the progression of the project if I don't pivot to another material. So you you've got to be prepared to like make tweaks along the way and having the financial buffer in mind is, you know, just wisdom.

speaker-1: And I would say too, I would throw one more thing too, especially for those who are maybe investing or remodeling an older home. The older the home is, the more that contingency budget needs to be. And that's just because of what materials were used back then, age of home, and you know, problems that went un unchecked for longer periods of time tend to require even more cleanup and repair. In the end.

speaker-0: Yeah. And I think this next point is probably one of my favorites because this is what we do all the time, is you know, evaluating things from a whole. So I always talk about going from macro to micro viewpoints, but your budget is still collectively a whole budget. So if you're gonna go over in one area, like let's say our tile ended up being higher than we anticipated, well, now I'm zooming my lens back out and I'm evaluating, okay, is there anywhere else in the budget where we have room to you know, pull some money out of there to cover this expense over here. And you know, get get creative in how we're problem solving and keeping your your total options open versus just allowing your budget to keep ticking up, ticking up, ticking up. And before you know it, you know, it's exploded, like we're talking about. Another example there would be like, you know, mechanical failures, I like to call them. So where we're changing something in the house, not because it's ugly, but because it is not functioning to the standard it needs to function, like the leaky shower. That became something that funds had to be allocated to that. Exactly. And we have a choice at that point. We either increase the total budget or we take those funds out of another area that's maybe more aesthetically driven that isn't going to ⁓ affect how we're living in the space. It's not going to affect the overall design. And that's that's an example of how you can kind of shift some funds around to still maintain control of your budget, but address things that are absolutely necessary to address. So love this conversation today because this is this is real, real world renovation, construction, design. Again, I can't emphasize enough like the the value of this roadmap, we have put it into a very digestible presentation, if you will, of of how you can evaluate spaces, establish those goals, and then go through these processes of developing real plans that you have clarity. You have clarity when you're going into these projects. You know, you know how to identify high impact areas, how to allocate your funds strategically. How to, you know, mitigate overspend in areas.

speaker-1: You know, 'cause the goal isn't to just spend more, it's to spend on what matters the most and what's getting me the highest impact and the biggest return on my investment.

speaker-0: Yes. It's not, you know, aesthetics are only a fraction of the result of interior design and renovation. So hopefully you're feeling more equipped and more empowered. If you know that you need this blueprint to help you succeed, you know, drop in the comments blueprint and we'll make sure and send you the link. You can also find it on our website at audaciousdesigns.design under return on design roadmap. And we want to make sure that, you know, we're we're feeding you content that's adding value to you. So leave us some comments. Like if there's topics we haven't talked about that you want to hear, let us know.

speaker-1: Yeah, and just make sure you ⁓ hit that that follow button, subscribe, like, and ⁓ you know, we appreciate you guys joining us this week, and we'll see you guys next week.

speaker-0: We'll see you next time.