Many people interested in designing and building a custom project start with the question: “How much will it cost to build?” When people hear the answer, their next question is, “Why? I thought it would be less expensive.”
Then come the following thoughts:
1. “My friend told me that projects can be built for $200 per square foot”
For years people have heard a general rule of thumb that houses can be built for $200 per square foot. They think that if a 3000 square feet house costs $600,000 to build, then a 500 square feet remodel or guest house should cost 500 square feet X $200 per foot = $100,000. But this just isn’t true.
The $200/sqft number can be accurate, but the size of the house has to be large enough to take advantage of economies of scale. Generally, the bigger the house is, the less expensive the per square foot cost can be. The smaller a house is, the more expensive it is to build per square foot. You’re going to have to build a 2500+ square foot house to be able to hit that $200/sqft number.
Also, when a builder says they can build a house for $100 per square foot, they are talking about the costs to build in a subdivision in some place like Atlanta. They not factoring in design, engineering or permitting costs. These costs alone are often over 20% of the project. They are not factoring in quality construction you’d expect in almost any coastal or metropolitan area. In many place costs of $500-$1,000 per square foot are not only common but spending that much makes sense as that is the cost of a quality and finish level that owners expect.
And finally, the cost per square foot can change dramatically based on the location of the project. For example, costs to build in a coastal city can be as low as $200/sqft but modern projects in Dwell Magazine are easily in the $500 per square foot or even $1,000 per square foot cost. As home prices continue to increase around the country, the cost of building increases as well.
2. “I just want a simple house.”
That’s great. But even a simple house is a complex feat of permitting, engineering and back breaking labor. These things take time and money.
As an owner, it is helpful to know that all projects are built using the same process:
a) Figure out what you can build, including permit requirements in your city or county, if you do that kind of thing 😉
b) Work with an architect or designer to draw up the size, look, and shape in a “schematic” design.
c) Submit the design to the planning department to get planning permits.
d) Once you have the planning permit, have the architect draw up construction documents for a building permit. This often requires two or three engineers such as structural, soils and civil.
e) Determine all the “finishes” which include appliances, faucets and fixtures, materials, tile, paint colors, landscaping, utilities etc..
f) Work with builders to get bids, select one, sign a construction agreement, prepare the land, pour a foundation, frame the house, enclose the house, hook up water/electric/sewer, and install finishes.
Whether you build something that is 500 square feet or 5000 square feet, all of these steps are taken.
3. “I’m thinking a prefab house because it’s easier.”
This is possible but it really depends on your site, existing home and personal goals. Blu Homes and Living Homes are the top of the line if you go this route. Buying a home that is built somewhere else can reduce design fees, but it still needs to meet your city and county codes and then be permitted. Then it needs to be shipped to your location, and if that location is in an urban setting, you’re looking at significant costs to shut down streets and hire a crane to lift the unit into place. Once it arrives you will have paid for the same foundation and water/electric/sewer hookups that you would need with a stick-built home. By the time all of this adds up, you are looking at a similar price to building a custom house. And while you don’t have to spend time designing prefab, you still have to spend all the time getting permits. Most importantly, a custom home allows you to design something specific to your needs and the lot in which it will reside.
4. “My uncle is a handyman or contractor and can build for me for cheap.”
The best way to save money is to do the work yourself. It will take you a long time and you will make mistakes, but it can be an amazing and fun experience. One of our favorite projects is this Normandy Style stone house in Upstate NY. The walls on this thing are 2′ thick stone!
The owner spent seven years getting to this point. It is a $1,000,000 home that will cost less than half that and it is a work of art. We’re not counting this husband/wife team’s 10,000 hours of labor in our costs though.
If you want to try a DIY project, just be really careful because construction is the definition of back-breaking labor.
The second best way to save money is to manage all the subs (electrician, foundation, framer, plumber, drywaller etc…) yourself. The most skilled subs prefer not to work for inexperienced clients. They are concerned that your inexperience will require too much of their time as you make decisions, that you will call them back repeatedly and they will end up making very little money due to the extra time. So owner builders often get stuck with the second tier subs and that can be painful!
If you have a relative who is skilled and experienced and willing to work for free, jump on that and do it… but again, we’ve seen siblings stop talking to each other when the builder in the family is too slow or too expensive.
5. “A builder I know says he can build for $X.”
Be very careful with this scenario. When you get a bid from a builder, make sure they give you a price for every line item that will go into the house, from permitting, to design, to construction, to cleanup. Permits alone can cost $15,000-$100,000+. Architect and engineers are often 15% of the project’s total cost too. At New Avenue, our process requires that our partner builders review a 200+ line spec sheet with every single piece of building a house so no one can say the dreaded phrase, “We didn’t talk about having a (insert whatever you like here, such as “sewer line”) for the house. That will be an extra $5,000.”
6. “Where does New Avenue get information about building?”
After working with many architects and builders on over 500 projects, we have a very unique data set that shows exactly what every component of building a house costs. For example, we can easily pull up a project that we managed and show that the foundation for a home in a landslide zone with 12 piers going down 10′ each cost $40,000. Or we can pull up a sheet that shows a house with $7,000 allocated to Hardieboard siding and the fair change order (and totally a good idea) to change that to cedar shingles.
7. “Can you give me a sample breakdown of costs to build my project?”
This is our specialty. Let’s say you wanted to design and build a 1000 square foot project in the San Francisco Bay Area. We would start by showing you what a similar, recent, project we completed cost. This would include every detail. Then we adapt that budget to meet your needs.
Here is a shortened example of a small project:
– Initial Assessment and Permit Research: $400
– Design Fees: $5,880
– Construction Documents: $5,400
– Engineering: $4,500
– City Fees: $5,620
– Survey: $2,300
– Construction Administration: $3,400
Total Design and Permit Costs: $27,500
– Demolition: $2,100
– Site Prep: $7,100
– Foundation: $11,975
– Framing & Carpentry: $23,700
– Insulation & Moisture Protection: $3,500
– Windows & Doors: $6,489
– Finishes: $14,825
– Plumbing: $13,900
– Heating and Ventilation: $3,400
– Electrical: $5,300
– Contractor Overhead and Profit: $15,100
Total Construction: $107,389
Total Project Cost: $134,889
We can show you this for $100,000 projects and $2,000,000 homes and everything in between.
8. “Can spending a ton of money still give me a good return on investment?”
Absolutely. The financial return is often there and more so, the real return is usually so much more valuable than any cash you might collect in a future sale. A creative space, family room, home office, guest room or anything that increases the value you and your family get out of your home can make the investment well worth it.
Financially, many of our clients create something that is worth more than the cost of construction. So their return is crystal clear.
Other clients spend $200,000 building a guest house that increases their mortgage payment by $1,200 per month. Often times they can offer that home to a child or parent who would be living somewhere else for many times the cost of the guest house. Other people use this as a home office and create a new business from home. Many people choose to downsize and move into their accessory dwelling while renting out their main house, bringing in even more rental income. Or by creating a second unit for your child or your parents you can avoid paying for many of the expenses of living separately such as rent to live elsewhere, maintenance and taxes of owning two homes, or the high costs of assisted living.
No matter what you are considering, the New Avenue platform is the easiest way to get organized, get bids, hire a team and manage your project.
You can sign up and use the New Avenue system for free here: Get Started
Have any questions? We are available to discuss your goals & ideas. There’s no fee or commitment. To request a time for a call from our founder, Kevin Casey, just click here and tell us when to call you.