New Home Build End-To-End

[John Blackman]

@J Scott inspired me with his diary of a new construction project to do one of my own.  So not to be outdone, I'm actually going to do two.  This one will be for a project that we have recently completed.  I'll add new content every couple of days that represents a week's progress.  The other thread will follow the project we just crowdfunded on iFunding.com.

Just for some context, this is our 12th new construction project, so they are starting to look kind of familiar by now.

So with that let's get started on 1106 Berger. 

This is an East Austin lot about 6500 sqft.  That number is important because it is too small to build a duplex, so it has to be priced to build a single family home.  It has a large tree on it, but it's near the property line.  We later found out it is one of the largest trees in the county.

It's a corner lot too as you can see which means setbacks are going limit our buildable space.  It's also near a creek, so we'll need to check the flood plain.  It turns out that it is in the 100 year flood plain which is ok.  We can build the finished floor elevation 1 foot above said plain and according to the models it shouldn't get wet even in a 100 year flood event.

The Floor to Area ratio requirement is 40% (This is specific to Travis County, Texas) or less which would mean the maximum house size we could build is 6500 * 40% = 2600 sqft.  Sounds great right?  Well, we don't want to build too much house for the neighborhood or we would price ourselves out of the market, so we went for a simple 1500 sqft 3 bed 2 bath design.

The comps in the area at the time of purchase of the lot were about $180/sqft for new construction exits.  So our target exit would be $270,000.  We want to have at least a 20% margin after all costs are tallied and we budget $110/sqft to build for this area, although we are pretty good at coming in under this if the lot is not complicated.  This buys us room for surprises and if we beat our target we can give a little more back to the investors.

That means we are going to spend $165,000 on design, engineering, permitting, utilities, sidewalks, bushes, grass, fences and house construction, $19,000 on transaction costs (7% of sales price), and some amount on land.  We want at least 20% of our out of pocket costs (land + construction) in profit.  This is critical because it means we can stomach a 20% dip in home prices and still sell the project without losing money.  You can speculate on future prices, but that is what gets you killed during a market down turn.

This leaves a max land purchase price of roughly $45,000 which we were able to achieve.  The light is green, let's go buy it!

The story behind this lot is kind of neat.  The neighbor owns it and just used it for a place for his kids to play as they grew up.  They have since left the house and now he doesn't use the lot, so there was only a small tool shed on the lot to demo which didn't cost very much.

[John Blackman]

FEASIBILITY

So we've gone through our checklist.

1 - Flood - yes, 100 year

2 - Trees - yes, engage the City of Austin arborist to determine setback requirements

3 - FAR - yes, plenty of room on paper, but the long 25' setback is going to squeeze us

4 - Survey - the key element in this case is getting the 100 year flood plain line and elevation certificate.  The FFE will need to be 1 foot above this certified elevation.

5 - Plat/CC&Rs - you always want to read these for any gotchas.  They are less likely to be an issue if you are building something that the neighborhood is already full of, like a small single family house in this case.  So here the risk is low.  We verified there were no restrictions.

6 - Design - Since we're building way under the 40% max FAR this is less of an issue, but we have our architect plan a design rough to make sure we can fit within the setbacks and stay away from the tree.

CONTRACT

You need to do all of the above before you sign a contract to purchase the land.  Once you have and you are confident in the project, lock it up with 60 days to close.  You will need that time to complete the detailed work above, raise your capital, and spin up a bank loan if you are using one.  You can do it in less, but try to get some extra time if you can.  Surveyors don't show up on time.  People are out sick.  Holidays close the banks and the city.  There are dozens of little delays that can keep you from getting your diligence done.

DESIGN

After all of the above are done and you're under contract, get a design rough from your architect.  This is a simple 2D drawing produced by the architect which has dimensions and a rough layout without much detail.  The purpose of the design rough it to make sure your design is appropriate for the market and that you can make changes before the architect has spent a lot of time (and your money) implementing something you don't like.  This is where you want to have your sales agent review the rough design to make sure it has what the market wants.  Other things to consider at this stage.

1. Is there enough room for the HVAC equipment?  Can it be accessed?

2. Where is the water heater going to go?

3. Do you meet all access, entry, and egress requirements?

4. Do the bathrooms all make sense?  Do all of the doors open the right way so there are no doors  blocking sinks or other key features.

5. Is there enough room for the refrigerator?

6. Add up your cabinet volume.  Is it sufficient for the house size you're designing?  A small kitchen will not sell well.

7. Do the grocery experiment.  You just got home with a load of groceries.  How do you get them out of your car and into your kitchen?  Does anything stand out or impede this task?  Thought experiments about your most common activities at home are great for flushing out the details.  A good architect will know these and create a great rough from the start.

Once you've come up with a good rough and sign-off on it, let the architect go do their work.  I think it is very important to have the project manager get this sign-off with a letter or stamp.  This makes sure you don't end up re-designing later after the architect has spent a lot of time on it.

For 1106 Berger, you can see the building fits snugly on the lot right up against the tree's critical root zone, and we used pier and beam so that we could build closer to the tree.  A slab wouldn't allow us to fit much here.  This is also not the rough, it is the plot.

While the architect is working on the rough, order your soil analysis and have your GC start getting bids for what it will take to grade the lot, remove any previous structures, foundations, removable trees and driveways.  In general you want to be preparing to start the foundation.

You can't start with a lender until you have the near final plans and a budget.  We'll save that for the next post.