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,
This course is designed for people outside of working hours but the back up service outside of working outs does not exists. The mobile is turned off and the email is not monitored so when you have an issue there is no support and you have to wait - so if you are planning to get the course done on a weekend be careful.
I didn't think of this as my project for my pool and cabana is only now close to starting in next 2 weeks. I initially borrowed the money a year ago and expected to start within 4 months but never thought it would take this long to get to this stage where i now have council approval to commence.I never thought of the interest rates cost until you see how you have broke this down. thanks for sharing and it makes you think a little wiser
I also are building a pool. I borrowed the money 3 months ago thinking i would use a private certifier and would be straight forward, but i have acid sulphate soil (which i knew nothing about) so has to go through the council and now has been sitting with council for last month and expected to be with them for atleast a couple more. Maybe i borrowed money too soon. Thanks for the info.
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Rick Heaton is a Building and Construction Industry professional with formal tertiary qualifications in management and training.