Davo Tries Again

[DaveW]

Yes, I own the land. The figure I have used for the land is the recent independent valuation (ex GST with RC issued). My margin range is 25-30% depending on sale price and assuming I meet the build budget. Currently, we are changing from an ‘all-in-one’ builder approach to procurement. Had a bit of a punch with that where the contractor had indicated all was well with budget only to come in with vastly increased pm2 rates. Have budgeted 2,000 m2 excluding P&G (c220k) and excluding rib-raft foundations (c200k). Numbers show (using the QS and adjusting the inflated contractor prices) that it should meet budget. (All figures ex GST).

Where did you get your budget figures from ?
With procurement presumably you mean to have a design done first and then consider bids from competing building contractors.
The problem with this is you're still using an all in one building contractor and, especially with you not being on site, the materials could be substandard and they will ask for more money to "upgrade" to your standard. Was this like how you got punched last time ?

[Minz]

Where did you get your budget figures from ?
With procurement presumably you mean to have a design done first and then consider bids from competing building contractors.
The problem with this is you're still using an all in one building contractor and, especially with you not being on site, the materials could be substandard and they will ask for more money to "upgrade" to your standard. Was this like how you got punched last time ?

Very early figures came from benchmarks in the area. By Sep 18 Budget figures from the initial designs: used QS to price it out and the pricing for that was reasonable per item (e.g. carpet $55/m2, and pricing both hollow and solid doors for differential choice). BC all ready to submit and is being used for pricing. The punch has come from the margin and I think generally not doing it thoroughly e.g. quoting 14k for each kitchen and laundry (no appliances in that particular line item, very simple entry level kitchen and a single small robin hood tub and that excludes their margin). They also quoted for a heating system that wasn’t in the spec and changed the flooring away from the spec. Won’t use an ‘all-in-one’ rather, probably a hybrid set-up PLUS a fully engaged company to manage PLUS I have now planned to be in the country (and staying close to site) for the bulk of the build. Holding costs are not big yet (only loss of rental income) so I can ‘afford’ to ensure my front end is worked up very carefully prior to actually starting. The local benchmarks also indicate that the budget is achievable including my higher than normal cost of foundations due to the bad soil. At worst, I have paid for RC and BC but retain the current villa.

I should have been more ready for the pricing as their site demo/clearance came out way higher than other quotes and they wouldn’t break it down to make it more transparent. Build down south was great as everything laid out in the contract including the margin (more retail like).

Interestingly this development quote dropped considerably when I enlisted alternatives (still a bit higher but I preferred the alignment at that stage). Their foundation quote (to the spec provided) was around 280k vs direct alternative (experienced in the area) which was sound 200k.

[DaveW]

Very early figures came from benchmarks in the area. By Sep 18 Budget figures from the initial designs: used QS to price it out and the pricing for that was reasonable per item (e.g. carpet $55/m2, and pricing both hollow and solid doors for differential choice). BC all ready to submit and is being used for pricing. The punch has come from the margin and I think generally not doing it thoroughly e.g. quoting 14k for each kitchen and laundry (no appliances in that particular line item, very simple entry level kitchen and a single small robin hood tub and that excludes their margin). They also quoted for a heating system that wasn’t in the spec and changed the flooring away from the spec. Won’t use an ‘all-in-one’ rather, probably a hybrid set-up PLUS a fully engaged company to manage PLUS I have now planned to be in the country (and staying close to site) for the bulk of the build. Holding costs are not big yet (only loss of rental income) so I can ‘afford’ to ensure my front end is worked up very carefully prior to actually starting. The local benchmarks also indicate that the budget is achievable including my higher than normal cost of foundations due to the bad soil. At worst, I have paid for RC and BC but retain the current villa.

I should have been more ready for the pricing as their site demo/clearance came out way higher than other quotes and they wouldn’t break it down to make it more transparent. Build down south was great as everything laid out in the contract including the margin (more retail like).

Interestingly this development quote dropped considerably when I enlisted alternatives (still a bit higher but I preferred the alignment at that stage). Their foundation quote (to the spec provided) was around 280k vs direct alternative (experienced in the area) which was sound 200k.

Yes better to be on site. You will then address the problems in real-time and the build will be done quicker at less expense.

First you get quotes for everything. When you get quotes it's not just about the numbers but like you say you gain transparency and contacts. This is your project, you need to be the expert and extremely confident in making your 30%+ margin,
People are going to say - "you should give them the work they went through all the trouble of doing the quotations". That's rubbish, you're in it to improve your margins beyond 30%.

Next, like you say take the hybrid approach and use sub-contractors. At this point you already know who you might give the work to or more likely you get a specialist who just does cut price roofing, for example. Word of mouth from actual workers on site is invaluable.

Say you've got the walls complete and you have the trushes and roofing to follow. You get the roofers to site to give you pricings based on the actual. These pricings will be very accurate because it is based on actual, rather than a design, and materials at the time. There will be less contingency in the price. Your bottom line will improve.

Follow this process with windows, etc, all the way to the kitchen cabinets etc. The actual house is near completion and you have the kitchen companies in who will be able to give a much better price indication and you can negotiate because the job is there for the taking based on today's material prices - there is no wait from design phase which necessitates contingency in pricing.

Your experience and contacts will improve greatly through this hands-on method. Your sub-contractors will see you are building multiple units on the site and your margins will improve for each unit to follow. Don't hesitate to cut the non performing sub-contractors and always look to undercut.

[Minz]

DaveW: thank-you so much for your excellent and encouraging response. Although, you mustn't sleep, or you may not be in NZ!

For me, this is a steep learning curve, although I have been using full diligence through respected companies e.g. Quantity Surveyors (specified by my bank) - that document has been my foundation, and also benchmarking has been really good so it becomes relatively obvious when someone/company is trying me on.

You are right about the: "you should give them the work they went through all the trouble of doing the quotations" component. I suspect I will come up against this tomorrow (NZT) in a muddy conversation. Fortunately for me, I have attention to detail and superb records: they can not tell me, yes we can do it within budget (recorde in email), keep up the "story" for 6 months and then come in massively over current budget and way above the original QS budget (pre-value engineered) and excluded all site prep and substructure. Unfortunately, I will have a delay but the cost to me is not "big" at the moment, and hey, I got some fairly good recoveries from within the old bungalow plus a good saving on demo costs due to the procurement approach....not sending good items to landfill!


Cutting out the "middle-man" surely has to help this affordable home situation. My drive is to create quality, simple, and enduring homes but I need to be on-to-it to do that. This is a fairly big job for me but I am pedantic and have good attention to detail and can work very hard plus I tend to finish things. The profits don't come easy and certainly are not for the meek!

Off to NZ for a couple of weeks shortly (get things signed up), back here for a wee bit, then NZ again for a few months....looking forward to making it all happen....enough diligence done, council happy, bank happy (so far), and I am about to enter a murky conversation (that I suspect will border on bully attitude), and then enter a the new superstructure contract style (if that is the correct wording).

I must say, it is easy to see how easy it is to go wrong e.g. if I hadn't completed full on quantity surveying or benchmarking, my project could have been killed in the "excrement of a boy cow".

[DaveW]

Keep us updated. Even if it is on Davos thread

[Minz]

Keep us updated. Even if it is on Davos thread

Yes, a little hijacked ...but similar theme at least! My intention was not to actually discuss it, rather share the numbers as they come up: it is this that has helped me so far so best I share a little back.

[Davo36]

Buy a value-add commercial property?

Yes I probably should. But I've so inactive for so long that I'm not sure how to do this now.

In the past what I've done is tidied up places, increased rents etc.

I guess it's a matter of finding a somewhat under rented place, or somewhere where rents can be increased with a bit of reconfiguring etc.

[DaveW]

Yes I probably should. But I've so inactive for so long that I'm not sure how to do this now.

In the past what I've done is tidied up places, increased rents etc.

I guess it's a matter of finding a somewhat under rented place, or somewhere where rents can be increased with a bit of reconfiguring etc.

Yes. Spend 3 months refamiliarizing with values and agent contacts. You can buy vacant or under rented or partially rented and reconfigure, increase lease terms thus not only increasing rents but also reduce CAP rate.
Increasing total rents by 30% and reducing CAP rate by 1% can have the effect of increasing property value by more than 50%.