How To... in 02562>Question Details

Gary Lepore, Home Owner in Sagamore Beach, MA

how to build a house and not loose money?

Asked by Gary Lepore, Sagamore Beach, MA Thu May 17, 2012

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Have the builder buy the lot and furnish the construction loan, if they are not strong enough to do that you don’t want them to build your house anyway. Good luck.

Jim Simms
NMLS # 6395
Financing Kentucky One Home at a Time
0 votes Thank Flag Link Fri May 18, 2012
Jim when we do buy the lot and carry the loan we build in a 18% profit margin and have a us against them attitude. When we build cost plus 10% we are on the same team as the homeowner and try to control cost & offer options while maintaining the budget. A cost plus contract also requires an intense effort on the part of the Realtor(R) as they have to attend all meetings and be an active part of the process.
Flag Fri May 18, 2012
I agree that there is no easy way to answer this question. I have been in conversations with a client looking at land in Sagamore Beach recently who asked a similar question. Your best bet is to start with a good and reputable builder who can give you great estimates that are as close to being accurate as possible. There are so many variables when it comes to building, land prep, running utilites to the house, etc.

Also, what exactly do you mean by 'loose money'? Are you looking to build and sell?
0 votes Thank Flag Link Fri May 18, 2012
There is no easy answer to your question as there are way too many variables including unexpected cost for the "unforeseen". BUT, the one word that I always tell my clients is "budget". That is your foundation, start there and start getting quotes from different builders, architects (if you are not building it yourself) etc.. As to the "loose money" portion I would ask is this an investment (i.e. are you going to build it to then sell it?) if this is the case we can do a projection based on type of home and other details that you will build. Or are you going to live in it?. Carefully analyze your budget and be sure to stick to it and leave at least a 10% for what I mentioned above, the "unforeseen" so that you have a bit of cushion.
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0 votes Thank Flag Link Fri May 18, 2012
Your best bet going the conventional route might be a cost plus contract or a build for fee contract. Many items make up the cost of new construction and in the past the banks were only willing to 75% of value, there was a specific reason for this and this was the fact that about 25% of the cost of new construction were fee based. The banks theorized the property was worth only 75% of the selling price since the fees & fluff did not constitute sticks & bricks. Examples of fees & fluff include but are not limited to real estate fees 6-7%, builder fees 10-12%, city impact fees 1-3%, developer fees 1-2%, construction related banking fees 1-3% and city permit fees 3-5%. If you were to add up all these “soft cost” the number is roughly 25% of the total cost. Meaning the cost of the land, labor and materials is roughly 75% of the total cost hence the number the bank placed the value upon. In a direct answer to your question a cost plus contract generally benefits a consumer IF the builder you hire is ethical and has the skills to perform their job at a high level. Most custom builders today are project managers and bean counters with some infield experience in certain trades, the best builders are a combination of accountants, negotiators and project managers. Good luck in your endeavor!
0 votes Thank Flag Link Fri May 18, 2012
Thanks. That was a great answer.
Flag Fri May 18, 2012
It's simple. Do your homework to make sure you don't overspend or overbuild for the proposed location. Depending on your experience, this could be a 2 month or 2 year process.
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0 votes Thank Flag Link Fri May 18, 2012
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