Questions To US Master House Builders On Real Estate Construction
Series Twelve

Hello,

Colm here ...

I conducted a series of interviews with US Master House Builders

From now on you'll know the questions "not to ask" house builders. Pin your ears back -this is really good stuff.

Question 1.

What's the cost per square foot now, since material cost have gone up. I'm doing a 6 unit town home development in Pasadena, CA with subterrain parking. Last time I heard it was $120/SF. Or where would I look to get an idea.

Answer

According to the National Builder's Association the cost for a custom or quality built home is about $130 sqft.

However, a developer should never ask a builder for a quote based on square footage. If you ask for a quote based on square footage and a builder gives you one -- RUN - don't walk away from that builder.

(Colm: I agree whole heartily with Leonard on this point. Would you walk into a store and ask the guy what his hammers cost? I don't thing so. You would "specify" the type of hammer you want. So when you want meet house builders and don't "specify" what type of house, 3 bedrooms or 10 etc - is it any wonder you get answers that don't mean anything.)

House builders can't give you a quote based on square footage. They have no idea what you plan for the home.

Whether you want concrete floors or Italian Marble ones. Gold plated faucets or standard ones.

Instead, you tell house builders what you want to build properly.

* The fair market value is $X.

* The appraised value of the property is $X.

* The land is $X.

* And, you have budgeted $X which includes the price of the land for each unit.

Now You Ask: Can the house builds construct the unit within your budget?

This way you control the cost. You get an estimate from them based upon what you have budgeted. Once they tell you they can. Then you start working out the details. Depending upon what you want in the property house builders should be able to tell you if they can build or not and give you a quote.

When you ask house builders how much per square foot, you're telling them that you don't know what you're doing. That you don't know what you want. And, you haven't done your homework. You're basically asking them to take advantage of you.

To compare house builders, is it good to break down the labor and material. And for each portion of work.

In other words, I want to compare contractors without being complicated with them. Also, I want things detailed enough so that I can value engineer the project.

You sound like someone who does their home work. You're the type of builder that Professional builders want to work with. The key for you is to keep it simple. Don't get too complicated or detailed.

You've told house builders what your budget is. Either they can do or not. What you want to pay closer attention to is not the labor or material. Instead look at the quality of their work.

They should insist that you hire a property inspector of YOUR choice to inspect the property BEFORE you took possession of it.

They may have daily video updates so you know the progress of your property.

Do they have their own in-house architects and structural engineers?

It's nearly impossible to tell house builders apart until you've tried them, then it's too late. Which is why I would recommend that you find a Master Builder.

Ask local Realtors for the name of a Master Builder. Then ask the Master Builder what they can bring to the table that Builder Bob can't.

You'll find that Master Builders can help a developer from start to finish of the project. They have a vested interest in ensuring your profitability. The more profitable you are the more likely you'll hire them to build other properties.

It's the difference between buying a Chevy or a Mercedes.

Question 2.

To control cost, is it a good idea to have the general contractor take the project from site preparation to framing and exterior and rough-in.

And I handle mech, plumbing, elect, roofing and landscaping contracts. I was planning on having a construction manager represent me and advise me.

Answer

Usually a general contractor will take charge of the whole project. They have the connections. The Master Builder, usually hires a general contractor for land prep, foundation and hire subcontractors.

If you have a construction manager that you know and trust -- a Master Builder would hire them to be the "Site Supervisor". This way you know that your interest are being looked after. There is no extra cost. It's part of the quote the Master Builder would give you.

Question 3.

Is there a proforma available with formulas to input my estimated cost and profit projection?

Answer

This would depend upon the properties you're building. If you hire a Master Builder they will show you exactly how to know the appraised value of the property before they build it. Once you know this, and you know what you have budgeted, then you know what your profit margin is going to be.

Let me give you an idea.

Let's say that you're building a Upper Income residential home.

You know the Fair Market Value for it is $700k.

You know the land will cost you $150k.

You know that you have budgeted $500k including cost of land.

So you know that your profit is going to be $200k.

The formula would be: FMV $700K - $500k Budgeted - ($150k Land + $350k Structure of Home) = $200k Profit.

That's the easy part. The hard part is knowing exactly what property to build. Exactly what square footage, style, location, number of baths, number of bedrooms, size of lots, etc… That's where the homework comes in.

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What a great learning curve! Plenty of great information to be stored away in that "knowledge bag."

Bye,

Colm Dillon

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