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General Preparations

>>General preparations | Building lot/property | Home plans/Specifications | Engineering | Building permit | Subcontractors and bidding | Lien Waiver | Contracts and scheduling | Financing

Starting Out
Now that you are committed to contracting your own home you will need to do the following: make some basic financial calculations, decide on how to market yourself to the lending institution, set up accounts with building material suppliers, meet with local building and zoning officials and do a preliminary property search. Preliminary property search- You need property before you can decide on a home design, construction budget, apply for building permits, and apply for financing.

Finding a building lot- Go to a real estate agent and ask for a MLS (multiple listing service) for building lots. Give the realtor the following information: General location (North East section of the city) zoning, asking price, will the owner subordinate and if it is an unimproved or improved lot. They will also need the Utility status i.e. is there power and water stubbed into the lot? If not where are the utilities.

Location, Location, Location- This is the most important aspect of the property. It will affect financing, the value of your project, and your future resale potential. The better the location the more secure the investment.

Zoning- Zoning regulations govern the use of the property. For example you can't build commercial buildings in residentially zoned areas. Residential zoned areas are generally broken into single family residential, multi-family residential, and high density residential. Get a zoning map from your local planning department.

Asking price- Once you have determined your total project budget, you can determine your building lot budget. Ask your realtor for lot prices that are 10-15% more than your budgeted amount. A motivated seller that has a property listed at $40,000 may part with it for $35,000.

Utility status- What is the status of the utilities? Are the utilities stubbed into the property? What is the status of the electricity, gas, water and sewer. If you have to pay to have the utilities brought to your property, the cost may be prohibitive. Often times a property is listed at a unrealistically low price because there are no utilities. Natural gas supply and sewer lines will probably not be present in many rural locations. The MLS printout should tell the status of all of the utilities.

Subordination- Is the current owner willing to subordinate their position to the bank or lending institution? If they will subordinate their position, it is possible to put a small amount down on the lot and sign a promissory note for the remainder. You then have rights to build on the lot and pay the promissory note off when construction is complete.

Financial Calculations

Contingency- most lending institutions require that you add a contingency of 5-10%. The reason is that most houses go over budget as prices tend to go up, not down. Also, owners often make changes in the plans, which adds to the cost. Poor communication with sub-contractors can also lead to cost increase. Hopefully after you have examined the section on hiring subcontractors this will not be a problem on your project.

Property expense ratio- the total expense over property expense should be no more than 33%. Ideally the ratio should be between 20-25%. For example, if your total budget is $100,000 don't spend more than $33,000 on your building lot. If your ratio is out of line, you may have trouble getting a construction loan and reselling your property may be a problem later on.

Square footage costs- The cost for your home can be broken down into a cost per square foot. Most builders figure $60-80 per square foot for finished space for an average to good quality home, and $20-40 for garages and unfinished spaces such as basements. Check a subdivision in your area and make the calculations for yourself. For example, if a 2000 Sq ft. home in your area is selling for $175,000 and an improved building lot costs $35,000. The house cost is $140,000. If you figure a 400 sq. ft. garage at $25 a square foot equals $10,000. Then divide 2000 into $130,000 and you get a square footage for finished space of $65 per square foot.

Market yourself- Lending institutions want to protect their investments. They will want you to have some construction credentials, either a valid contractors license or a construction resume or both. However, many banks are responsive to a well-organized owner-builder. If you have a proposal with property, blueprints, cost breakdowns, and bid proposals, you will be taken more seriously.

Set up accounts

There are several benefits to setting up accounts with suppliers. One is that you give yourself 30 days to pay for supplies. You also have records for the bank, so that getting draws at the end of each month is simplified. Getting supplies delivered to your site is also easier when you have an account with a supplier.

Set up accounts with two different lumber companies. Also set up accounts with one of the following: concrete supplier, electrical supplier, plumbing and mechanical supplier.

Some suppliers often will not set up an account with you unless you are a licensed contractor. Explain to the suppliers that you are contracting your own house and that you intend to purchase large amounts of supplies from their company. Negotiate for the best discount possible. Most companies discount according to the amount that you purchase from them. They realize that Home Depot and Home Base will sell you the same supplies, so why not sell them to you and make the profits!

Meet with building officials- In order to make your efforts as seamless as possible, it is a good idea to visit with the building officials in your area. Your city has a building department which is generally located at city hall or the city office buildings. If you are building outside city limits, the county may have jurisdiction over building activities. Because owner-builders make up such a high percentage of all building permits issued, many city building departments have provided a checklist of requirements for getting a permit.

 

 

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