First of all, start by limiting your renovations. It's easy to get carried away, expand the scope from one's original goals to renovations throughout the house. A great way to keep perspective is to start planning your renovations project at the time of the home inspection. As the home inspector goes through the house, walk along beside him and take notes and pictures. After the home inspection, use the home inspector's notes and your own to make a list of improvements your new home will need on an immediate basis. (When presenting your offer, you can use this list to negotiate a reduction of the price.) These will be the items you will want to address first and foremost.
Decide what not to do
Here's the tough part: decide which projects NOT to do (or at least not todo right away). Ultimately, your strategy for the home will determine your strategy for home improvements. If you're planning to flip the home for a profit, focus on curb appeal: landscaping, exterior paint, roof repairs if needed. If your plan is to rent it out, a key area to focus on is the bathrooms. Another is the kitchen. A home improvement that usually has little to no dividend: the garage.
Do it yourself
Some tasks are simple enough for you to carry out on your own. While painting the interior walls can be time consuming, you can save thousands of dollars by tackling this yourself instead of paying a contractor.
Hardwood floors and granite countertops are a classy touch, but can easily add up. Using quality imitation supplies can reduce your costs and end up looking just as nice.
If you're going to use contractors, be sure to get several estimates. Labor costs vary dramatically from one contractor to another. A minimum of three estimates will keep you from overpaying.
Decide on a budget beforehand. You should have a budget for the whole rehab/renovation and then budget out each aspect of the project. By staying disciplined on each part of the project you'll ensure that all your desired projects can get done.
A great strategy to offset the cost of home improvements is to align home improvements with legitimate medical needs, and then write them off in part or in full. Keep in mind that IRS Regulation 1.213(e) states that the home improvement must be toward prevention or alleviation of a physical or mental defect or illness, not toward general health or well-being.
For example, if someone in your family has asthma, you could potentially write off new air conditioning. A pool might be justified to help alleviate arthritis. There are many other examples in IRS Publication 502 (Medical and Dental Expenses).
Take advantage of special financing with the FHA’s 203(k) program
It’s not well known, but many home buyers are starting to discover the Federal Housing Administration's 203(k) program. This program provides cash for repairs in addition to mortgage financing in a single loan.
By rolling all financing into one package, FHA 203(k) allows the borrower to take out one mortgage loan, at a long-term fixed or adjustable rate, to finance both the purchase and the rehabilitation of the property. The mortgage amount is based on the projected value of the property (after improvements are completed) and also factors in the cost of labor and materials necessary for the rehabilitation.
The program can have a nearly -0- out of pocket cost to the home buyer, because it also allows homeowners to include the cost of the inspection, an origination fee and the cost for a title insurance update in the total, single mortgage loan.