Often the first time I meet with a client it’s because they are thinking of building their ‘dream home’ and after the first question that is always “what is the maximum amount I can borrow?”
This is something that I invariably answer with well do you want to live off bread and water or continue the lifestyle you have?
The second question is often “do you know a good builder” or my favourite “what do you think it will cost to build an (insert list of things of the desired item). Now while we do see a lot of contracts for construction and a lot of property valuations. There can be wild variations in the cost to build on a square meter basis. ” Inevitably we send them to see a builder or quantity surveyor to confirm the construction costs.
The second most common time we hear from clients when they are building their ‘dream home’ is the phone call that goes a little like this. “The house is nearly finished, but the builder says we are going to need an extra $50,000 to finish it”.
So how can you be sure you’re not going to go over your loan limit and ensure your builder or contractors are going to stay within the budget?
The simplest way to do the calculations is on a square meter basis. That is you estimate the total square meters involved in the property and then consider the level of finish. Then use one of the many average costs to construct a table like the one at BMT Tax Depreciation http://www.bmtqs.com.au/construction-cost-table to work out the final cost of construction, and while this can be an excellent guide, there are still many variations.
As a result, we would suggest the best approach is work out the detail in your project and then talk with several architects, designers, and builders. While each will probably give you a slightly different “number,” you should be able to identify the kinds of details to drill down into to get something close to accurate.
Here is our Dream Home Construction Survival Guide that should help you stay on budget
Identify what you actually what the final project to look like
Will it look like a new home or will you try to match the existing properties in the street where the property is to be a knock down rebuild? If you are knocking down and rebuilding, will you be keeping any of the original façades? Are there any council restrictions on the type of construction?
This last one is particularly important as I have met with clients in the past that purchased on the outskirts of a country town a small block of land hoping to live with a minimalist environmental footprint.
The there chosen building was designed as separate compartments each one being self-sufficient for light and power and constructed using efficient heating and cooling and a high percentage of recycled materials. These compartments then interlocked to create a beautiful home.
Unfortunately, after submitting the plans to their new local council, they discovered that due to ‘bushfire concerns’ only full brick or brick veneer housing was permitted. This decision was extremely upsetting to them.
While this is extreme is does bring me to my next point
Check and recheck your plan
It is the surest way of getting off a budget is to make snap decisions or defer checking things because it will be all right on the night. As they say not making a decision is a decision, it is just a decision not to decide, and when it comes to a construction project that indecision can cost thousands.
Think about it, construction has started, and you haven’t made the decisions about the tiles, plumbing fixtures, what trim, etc. The builder starts pressuring you to make decisions or worse, makes a decision for you. The result, you’re tearing out all the work already done or living with something you don’t love because you don’t have the time or money to change it.
This might sound unusual but the reality is, often plans are made up to a year before the actual; construction and by the time construction starts a particular colour of tile or bathroom fitting has come to the end of its product life. Now while sometimes suppliers will replace one product with something very similar, but is amazing how much that little shade lighter, darker or a different shape can make at the end.
The best way to avoid these scenario nightmares is to have your architect or designer prepare a detailed set of drawings and make all of your decisions before starting construction. Then if any changes in the supplied product are made the architect or designer can check for the closest next product.
The other thing these detailed decisions will help stop during construction is the dreaded ‘change of mind’. It is amazing how many people go off plan after seeing the latest gadget or style. Sticking to your original plan can be a case of easier said than done, but preparing a plan and sticking to it is the best way to stay on track.
Check the detail within your budget
The largest item in the budget will be the construction costs, but there will be many other expenses that you will need to allow for. Don’t forget things like site cleans up, legal fees, council permits, moving expenses, decorating, landscaping, architectural fees, financing costs and if you were moving out of home temporary accommodation costs.
Ensuring you have a detailed budget at the outset and assign funds to cover each one can be the difference between finishing with spare cash and finishing with no money left for landscaping or furniture.
On this, in your budget make provisions for ‘personal contingency’. While the budget will keep you on track, allow some extra funds for the few places where you’ll want to celebrate. For example, a kitchen backsplash is a place you may wish to do something truly extraordinary and remarkable. If you spend a lot of time in the kitchen, the backsplash is something you’ll see several times a day for many years. Even if it costs a significant amount, allow yourself to splurge a little on something you’ll enjoy.
Have a limit on the personal contingency
While it is important to have a particular contingency in the budget, it’s also important to stick with it. The temptations are always “While we’re it we might as well … “, and it’s easy to justify it with “it’ll only be a few hundred dollars”. The problem is those few hundreds add and once you do that a few times, you’ll have added a bunch of work and will blow your budget.
If you find yourself wanting something that wasn’t in the original budget. Either because it is just too awesome to pass up or it is something you overlooked originally. Have a look at your budget and what you have left to accomplish.
By checking the budget, you may be able to find and the area where you can reduce costs elsewhere. Perhaps it means some small changes like cheaper carpeting or tiles in a guest room or coming back to some areas once you’re closer to the finish and reviewing you construction contingency.
You should have a construction contingency
Like anything else in life, the law of a building project is that “stuff happens.” It could be a problem with drainage, a tree that you wanted to keep ending up needing to be removed. In older areas, I have even had a client who discovered an old fashion well under his house once it was demolished.
These are the truly unknown things that just seem to pop up.
The best way to deal with these unknown items is to allow for a contingency in the budget.
The best approach is to start with a higher contingency of say 20% of the total project and then as each stage is completed allow the funds in the contingency to reduce as a portion of the remaining budget. This way at the end of the construction, landscaping and furnishings you should be nearly at zero.
But don’t feel like you have to spend the money if at the end you still have money left in your contingency fund, it’s an indication that you had a good budget and a successful build.