Build ing Questions To A Master Builder
Series Seven

Hello,

Colm here ...

A few months ago I conducted an interview with a US Master Builder.

All the questions I put to him were yours - questions my "Residential Development Made Easy" e-book readers sent me as being of Top Priority.

This question is concerned with the variation in costs from one location to another in Australia, however he answers it in US terms. The angle he takes is very interesting - boy oh boy, can we learn from this man?

Question 1.

One thing we have been struggling with is estimating construction costs variations in different locations - especially the differences between Sydney and regional areas like the Hunter Valley and South Coast.

They must have similar variations in the US between the major metro markets and smaller locations - I would be interested to here how it varies and what the influencing factors are.

Answer

You're correct in that prices fluctuate drastically from one area to the other. An example of this is that I can purchase three acres of improved land, where I live for about $25k.

In California, I might have to pay $350k or more for a quarter acre. This plays into how much a home will eventually cost.

We do things a little different than other builders. We know how much it's going to cost to build a home. The cost is basically the same whether it's the next county or California or New York.

The land and the associated fees are the only real difference from one area to the other.

In other words, let's say that it cost me $250k to build a 2000 square foot home. All things being otherwise equal, it would cost me the same for the construction of the home whether it's in the next county or in New York or California.

In other words, the formula would be Construction Cost + Land + Associated Fees = Total Cost - Sales Price = Profit.

Construction cost remains fairly constant. It's the cost of land and fees that tend to change from one area to the next. The one exception would be in areas where the resources may be scarce. Such as what happen to wood and concrete in Florida after the storms in 2004.

Since we don't use a wood in our homes this didn't effect us as much.

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Always insightful - always informative - I am very please to be able to tap into this man's wealth of knowledge and thank him for being so generous and share it with us.

Bye,

Colm Dillon


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