Why Owner Builders need to Manage their Schedule
I quite often get asked or more correctly told, by my owner builder course students that they are doing the majority of the works themselves so if they do not meet their estimated or established times for works as scheduled, it is no big deal!
Whilst I get their way of thinking, I often wonder if the owner builder has considered the cost of money.
Now if you are one of the fortunate owner builders who are self funding the project, then this will not have as great an impact however if like most of us you need to borrow to complete you project then time is a significant cost.
I will keep the figures very basic and easy to follow, and of course every owner builder project will be different and each of us will have different financial circumstances but you will get the idea.
Lets consider you are building a new home as an owner builder and you your estimate the project cost, including land value, legals, insurance etc, to be a neat $500,000.
With most banks only lending 60% to owner builders, it is likely you will may a loan in the order of $300,000.
Lets assume the owner builder has estimated the timeline to run for 12 months from first turning soil to practical completion and has factored in the finance costs over that period.
What is the cost of a 60 day overrun?
If we take an average 5% on an interest only loan (typical of a construction loan), and assume 90% has been drawn down awaiting final completion, then the owner builder is paying an amount of $1125.00 in interest each month.
60 days will mean an overrun of $2250.00 in interest alone, but of course there are other associated costs such as rent until you can gain occupancy, extended project insurances, temporary fencing, hire gear and such.
So even a two month delay is likely to have a negative impact approaching $10,000.00 and that is not taking into account the personal cost and stress that often is associated with building a new house.
The figures I have provided are very basic and we are in a current low interest rate period so the cost of money is very low. Imagine the impact where interest rates are 10 to 12 % and higher.
So if you think you can afford to let your project just amble along and do not keep a careful watch on your schedule and timelines, it can be a very expensive exercise.
Best Regards and Happy Building,
Understanding Quality and Cost
Over the last couple of months, some of our owner builder course students have expressed a concern over the cost of their owner builder projects when considered against an expected per square meter rate.
There are so many variables that affect your build cost including quality of finishes, fixtures and fitments.
But as an owner builder you need to look at the other factors that may affect your build cost.
Building on a steeply sloping site for example will often require innovative design that enhances the usage of the site or allows for unique and interesting features. This normally comes at an increased cost.
Site access is also an area that is often overlooked when establishing your construction budget. To take this to the extreme, imagine the additional costs associated with having to barge every item and all materials to your site if you are building on an island. Site access or lack there of can require the use of specialist equipment or worse still the manual handling of all loads and excavated materials.
In many cases, we find the cost overruns occur in the preliminaries stages where unique or non standard design or construction techniques are required.
Additional footing complexity due to the adequacy of site founding materials are just one example where additional engineering works and certifications may be necessary. Temporary services may be difficult to establish and traffic management both pedestrian and vehicular may require extra manhours or resourcing as may erosion control, dewatering or sediment and environmental factors.
Other than these preliminary and design considerations, prime cost allowances need to be understood and identified or at least quantified when producing your budget estimates.
Floor tiles as an example can be sourced at rates as low as 20 dollars a square meter or can cost as mush as 250 per sq meter. So when an owner builder student tells me they are spending more than 1200 per square meter for a building of standard design and construction with 'standard quality finishes', I start to look at their quality expectations.
There is always a reason that building costs are greater than anticipated.
First question to ask is were they realistic to start with?
If they were, then look at where you have not been disciplined enough in selecting contractors or materials and where you have paid too much.
Learn from these experiences and always try to buy well.
If you have seriously overrun your budget, look for potential savings in the remaining works and the level of finishes and fixtures.
The good news is, unless you have very seriously overcapitalised on you project or over extended yourself financially, quality is good and will enhance the value and liveability of the dwelling.
I hope this answers some of the questions our owner builder course students have or at least gives you a little direction.
I look forward to the comments and the discussion that this post will ultimately generate.
Rick Heaton is a Building and Construction Industry professional with formal tertiary qualifications in management and training.