ownerbuilder.org

BUDGETING

We first survey the plot, then draw the model: And when we see the figure of the house, Then we must rate the cost of the erection: Which if we find outweighs the ability, What do we then but draw anew the model. -William Shakespeare

ALTERNATIVES:

2.1. Begin an initial study of ALL project costs as an exercise in project feasibility. Contact a "friendly" construction lender to discuss financing of your project, inquiring whether you may act as an Owner-Builder vs. working with a General Contractor. Create a written statement of your overall budgetary objective. This statement will describe the purpose of your endeavor by defining your values and concerns, and balance your ideas with fiscal responsibility. Identify your cost range: economy, modest, custom, or luxury. Don’t forget to pre-qualify for a loan, which should be a free service with the lender. Spend some time with Householder’s Estimating for Home Builders.

REFINEMENT:

2.2. Develop a strategy for achieving your overall budgetary objective. Accept that there may be multiple ways to achieve your goal and ample time should be given considering options. Do a rough "percentage" budget estimate of hard and soft costs as an exercise in project feasibility. Ask construction lender for an application packet, but wait before making and paying for a loan application. This will provide you with a list of what’s officially required by the lender when it comes time to apply for the construction loan. See Thomas’ Estimating Tables for Home Building.

DOCUMENTATION:

2.3. Select a fiscal plan of action based on a review of hard and soft costs. Combine all hard and soft costs related to the Design/Build process into a complete "Cost Analysis." As you extend your budget estimate into an itemized cost analysis keep in mind that this remains a “living document” subject to change. At this point, there should be a clear idea of your cost range in order to accurately consider construction-financing options. Use Lester's Complete Guide to Contracting Your Home.

NEGOTIATION:

2.4. Ensure all products and services required by your project are line items on your "Cost Analysis." This itemized list represents expenditures defined by your Drawings and Specifications. Your construction lender will be of great assistance in analyzing the construction cost breakdown for completeness and adequacy. As you receive "Proposals" from either a General Contractor or Specialty Contractors, evaluate costs by referring to a construction cost data base like Means’ Residential Construction Cost Data so you are able to evaluate proposals wisely. Apply for your construction loan with a “friendly” lender that offers good terms and a cooperative relationship.

MANAGEMENT:

2.5. Gain financial accountability by utilizing a "Check Register and Job Cost Journal" to record expenditures such as the product produced by “New England Business Service.” Dedicate this register/journal exclusively for construction expenses so there's an easy audit trail for your project. In addition, create a "Construction Cost Breakdown" to review your budget at a glance! If there’s any doubt about how to setup your register/journal, consult with an Accountant familiar with construction cost accounting. Establish monthly inspections by your lender’s representative to determine what work has been performed so progress payments can be issued through you to the contractor. Do not “assign funds” directly to contractor or supplier. Become familiar with Thomsett’s Builder’s Guide to Accounting.

DILIGENCE:

2.6. Use the "Construction Cost Breakdown" to control expenditures up to the final day of construction. By comparing budget estimate and bid proposals to actual payments and extra costs, you force yourself to justify any change from your original fiscal plan of action. Your "Check Register/Job Cost Journal" that you've used to write checks and categorize expenses will be a ready reference if there's a need to refer back to construction expenses. Your construction lender will keep you focused on your payment schedule.

FOLLOW-UP:

2.7. Close bank account dedicated to your project. Store "Construction Cost Breakdown" and "Check Register/Job Cost Journal" in the "Cardboard Box Files."

FURTHER READING:

About Construction Loans

Critical Thinking. It's the characteristic which defines us as human beings. It's the same characteristic which is vital to the ultimate creative challenge: the design/build process for residential construction.

Critical thinking about a construction loan begins before you even visit a lending institution. To get the best possible deal you have to know how to choose the right lender.

Budget Estimate

A Budget Estimate is a preliminary appraisal of all Design and Build costs.

obs newsIs your budget based on both hard and soft costs?

But, there's more... we also show a breakdown of "Builder's Overhead and Profit" as well as "Architect/Designer's Fee."

Cost Analysis

A Cost Analysis is a complete examination of all costs based on bid proposals from architects, trade contractors, and suppliers.

Are you certain all products and services required for your project are included in the analysis?

The 60 categories we cover in the Cost Analysis are very comprehensive.

BIBLIOGRAPHY:

Check Register and Job Cost Journal.
Groton: New England Business Service, 2006.

Householder, Jerry. Estimating for Home Builders.
D.C.: Home Builder Press, 1992.

Lester, K. and McGuerty, D. Complete Guide to Contracting Your Home.
Cincinnati: Betterway, 1992, 1997 3rd.

Residential Construction Cost Data.
Kingston: R.S. Means, 2005, update to current year.

Thomas, Paul. Estimating Tables for Home Building.
Carlsbad: Craftsman, 1989. (Formulas for material quantities.)

Thomsett, Michael. Builders Guide to Accounting.
Carlsbad: Craftsman, 1996. (Basics in construction bookkeeping.)

 

"Down Home with Tom Landis" Streaming Audio
Live Radio Show every Saturday afternoon from 3 to 4 p.m.

DOWN HOME RADIO EXCLUSIVE
Down Home with Tom Landis

"Construction Budget" with Guest Julie Mueller
Click here to stream audio

Tom again interviews Julie Mueller as she reflects on her years of experience as a construction loan officer working on ownerbuilder projects. Ms. Mueller describes some typical ownerbuilder problems, and explains how a valid and reliable construction budget is the most useful tool to understand and control project costs.

Real Player

Visit DownHomeRadio.com for the entire audio archive

 

Get More Information

Email comments or send questions to:
Owner Builder Services -- Tom Landis

Tom Landis © copyright 2007 OwnerBuilderCoach.com - All Rights Reserved
P.O. Box 711, Black Diamond, WA 98010     Call 360/250-2170