So, How Much?

Against our better judgement, we want to give you a peek into a quote that we are getting on our new construction on one of the three lots we own. The question is often: "So, how much?" Here is part of the answer:

ESTIMATE FOR 1,583 SQUARE FOOT HOME

Permits – 2000.00 2000.00
Temp. electric – 150.00 150.00
Temp. water – 150.00 150.00
Portable toilet – 400.00 400.00
Water meter – 990.00 990.00
Water tap fees – 4400.00 4400.00
Sewer tap fees –2400.00 2400.00
Clearing/grading – 4500.00 4500.00
Trash removal – 1600.00 1600.00
Termite treatment – 1000.00 1000.00
Footing materials – 2200.00 2200.00
Footing labor – 2600.00 2600.00
Foundation materials – 3200.00 3200.00
Foundation labor – 3700.00 3700.00
Waterproofing – 850.00 850.00
Framing materials – 17400.00 17400.00
Framing labor – 7650.00 7650.00
Windows/doors – 4500.00 4500.00
Porches – 3000.00 3000.00
Decks – 2000.00 2000.00
Plumbing materials – 4700.00 4700.00
Plumbing labor – 5500.00 5500.00
Electrical fixtures – 1500.00 1500.00
Electrician – 5800.00 5800.00
HVAC – 6400.00 6400.00
Siding materials – 3800.00 3800.00
Siding labor – 5200.00 5200.00
Roofing materials – 2800.00 2800.00
Roofing labor – 1500.00 1500.00
Gutters – 550.00 550.00
Garage door w/ opener – 1700.00 1700.00
Insulation – 4700.00 4700.00
Drywall materials – 2130.00 2130.00
Drywall labor – 3125.00 3125.00
Trim materials – 4000.00 4000.00
Trim labor – 5000.00 5000.00
Cabinets – 4000.00 4000.00
Granite countertops – 3500.00 3500.00
Bath accessories – 350.00 350.00
Hardware – 500.00 500.00
Shower door – 1250.00 1250.00
Painting – 6000.00 6000.00
Flooring – 7000.00 7000.00
Appliances – 3300.00 3300.00
Driveway – 3000.00 3000.00
Landscaping – 2000.00 2000.00
Cleaning – 500.00 500.00


Total - $154,595.00


You may be able to do this for less or more in your area. It is like our brother in Indiana talking about the cost of a home in Brownsburg, Indiana, and one in Annapolis, Maryland. Same home. Same fit and finish and square feet. Massively different pricing.

What you are not seeing in this quote is the cost of the lot. You are also not seeing the cost to clear the lot and find the right plan (altogether this was another 5K for clearing & plans.) You are not seeing the utility bills, or even the cost of Builder's Risk insurance. You are not seeing the property taxes or the monthly fees that might go into owning this bad boy. And you are not seeing the fee that we are going to pay a local company to act as construction manager. You are not seeing the "overage" money... the money we might have to pay if our CM or our contractor cannot keep the budget in line. But the biggest thing that you are not seeing... the number one item... is time.

If you are going to play this game, you have to know now that time truly is money. If a project takes too long, then you will lose money. We have an expectation of 90 days on this build once the permit is granted. (By the way, where we live, frost lines are not as big of a concern as they are in, say, Belfield, North Dakota.) There is a definitive value to time. And you need to add in the time involved in purchasing the lot, holding the lot (in our case we have held these three lots in reserve for quite some time. We treated them as an insurance policy. And it was -is- expensive.), and in carrying the new construction, and the eventual sale of the house. You have to calculate not only the commissions and closing costs of the eventual sale, but how many days you will have to carry the house until it is sold once it is completed. What is that time worth to you? What else, or where else, can you put your money into for that much time and for how much of a return? If you are holding lots for a year, then building, then selling, how much time do you have invested in the deal? Keep track. This is important. Why?

(Return/X amount of months) x 12 = Annualized Return

Can you get a better return elsewhere? If so, you may want to consider taking it. But hold on. We aren't done just yet.

The second biggest thing -some say the first big thing, is RISK. There are no warranties or guarantees that say you will make a single dime off of your efforts. So, reach down, between your legs, and ease the seat back (thank you David Lee Roth for that line), and give this some serious thought. Like the stock market, if you can't afford to lose, you probably cannot afford to be there in the first place. Do the Daymond John bit and start with smaller affordable steps. But know what that risk is worth to you. Give this some very serious thought. Can you invest in something else with less risk and equal or greater returns? Is there more risk here? If the risk is higher, the reward needs to be higher. Otherwise you may as well go look for some guaranteed investment with very low risk and a low rate of return on your investment. What is that exponential variable for risk? Only you can decide that. You need to nail down and figure out how much risk you are willing to take (first) and then what you expect to get compensated for that risk. This could be as easy as comparing investments and returns and quantifying the risk, or qualifying it, to the extent of your ability.

And finally, look at this as a worst case scenario deal. What if it all goes wrong? What if the market goes belly up and we cannot sell? What happens to your math when the sky begins to fall. Our fallback position is to rent. And we won't waste too much time renting it at a reasonable number that puts a good candidate (or renter) into reach. Each and every month involves carrying costs. We might also consider a contract for deed, but that is truly a last resort move. Why? We would rather have the possibility of all the cash invested coming back out in one shot. CFD is all the money coming back out in drips and drabs. It is a good solution for longer term wealth creation, but it is not the game that we are playing with Box Bend on a permanent or strategic level... at least not yet.

Stay tuned.