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How to pay for a million-dollar reno

Anthony Jones and Meredith Greenfield look over plans to tear down and rebuild their house.

JENNIFER ROBERTS/THE GLOBE AND MAIL

Some people told Anthony Jones, "Don't do it."

As in, "Don't subject yourself to months of renovation headaches and building costs that will inevitably rise more than expected."

In fact, the cost has already risen more than the $500,000 to $700,000 that he and his wife, Meredith Greenfield, had originally budgeted, and construction hasn't even started yet.

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The couple both work in banking, on the technology side. They wanted a bigger home, but liked their cul-de-sac in Toronto's North York neighbourhood. So apart from keeping the basement, which they already renovated, they have decided to tear down the rest and rebuild their house, enlarging the foundation and adding a second floor.

Anthony Jones and Meredith Greenfield in front of their house as it looks before renovations, which include adding another floor. THE GLOBE AND MAIL JENNIFER ROBERTS THE GLOBE AND MAIL

Anthony Jones and Meredith Greenfield in front of their house as it looks before renovations, which include adding another floor. (Jennifer Roberts/The Globe and Mail)

For all the naysayers they spoke to, the couple, who have a two-year-old son, also got encouraging advice from people who similarly like all the attention to detail and even the potential headaches in the service of the end goal. "They say it's completely worth it. You'll end up with what you want," Mr. Jones said.

"And looking at the market, financially it made more sense to do a renovation than it did to sell [our house] and buy something newer that would be equivalent to what we are trying to build," Ms. Greenfield said.

Construction loans for a full teardown and rebuild can be complicated. They are structured around different stages of completion. So, banks tend to give about 65 per cent of the value of the property and then dole out that money throughout the renovation, at various stages of completion, with an appraiser verifying each stage.

This concept shows the design by Ashley Reekie of Georgian Custom Renovations for the house after renovations. Georgian Custom Renovations Georgian Custom Renovations

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This concept shows the design by Ashley Reekie of Georgian Custom Renovations for the house after renovations. (Georgian Custom Renovations)

Construction loans are "a specialty product," said Kim Gibbons, a mortgage broker with Mortgage Intelligence in Toronto. It is more specialized than simply taking out a new mortgage or loan. "The house has to be absolutely completed before we can take this construction financing and roll it into another type of mortgage," she said.

Initial bank approval can also be an issue.

"The other thing to consider before you tear down a home is that if you've got a mortgage on that, the mortgage lender assumes that they still have both the house and the land as collateral. But then if you're going to tear down the house, you've got to consider that the mortgage lender might not be too happy if they knew about that," Ms. Gibbons said.

So, a rule of thumb in terms of getting beyond this problem and securing financing is to "have some skin in the game," she added. In other words, lenders are often looking for borrowers to have a considerable amount of their own money, normally about 40 per cent, earmarked for the project.

And the size of the project is key. Smaller renos, such as the new kitchen or bathroom costing $10,000 or $20,000, are usually rolled simply into a line of credit attached to an existing mortgage.

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The North York teardown is far more ambitious. "I call it future-proofing," Mr. Jones said.

"The entire main floor is being gutted, and we're adding a second story. Essentially, from the city's perspective, because we're taking down all the walls, it is considered a new house," Ms. Greenfield said.

When factoring in other costs, such as a tree on the property that needs removing, the teardown and buildup will cost about $1-million.

"We've seen an increase in our cost of somewhere around 50 per cent to 60 per cent, in terms of the core build," Mr. Jones said.

The savings compared with buying a new house is smaller than what the couple originally expected. "We thought we would save $400,000 or $500,000 versus buying something brand new. That margin has shrunk, but we're getting out of it something designed the way we want it to be designed," he said.

Another factor is timing. Interest rates have remained low, but reno costs have not. "Renovation costs go up between 15 and 20 per cent a year," said Gene Maida, who founded Georgian Custom Renovations, which is overseeing the reno.

The advice the couple gives so far is to have a detailed plan. Unexpected costs can come from all corners. As Ms. Gibbons, the mortgage broker, added, "If it's going to be a complete teardown, you've got to think about where you are going to live during the construction period. And there are going to be a lot of soft costs with that."

Mr. Jones and Ms. Greenfield have had to carefully mull their financial planning. "It did take a lot of consideration, especially when that number grew. We originally came into this with an expectation to line up financing to make it work without really stressing our way of life," Mr. Jones said. Yet, with the additional cost of a downtown condo rental and daycare bills, "we are definitely going to be stretched."

And although the family has no desire to move, they are still thinking of the resale value of the house after renovation.

"We definitely have tried in the design to not make anything that seems out of the ordinary or odd, or anything that's really, really tailored to us, that wouldn't be normal in the houses that we've looked at," Ms. Greenfield said. As a small example, they plan to put in a bathtub even though they prefer showers.

"We'd like to say we can break even with the market, which has been really our goal, to make sure we could actually sell and get our money back," Mr. Jones said.

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About the Author

Guy Dixon is a feature writer for The Globe and Mail. More

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