4 Non Project Factors That Can Explode Your Budget
You’ve wanted to build a custom home since you were young, you’ve had frustrations of living in houses or apartments that someone else has (poorly) designed and you’ve dreamed that someday you’ll get the keys to the car and be able to drive yourself. You worked hard at your job, you’ve saved your cash to be able to get in the realm of being able to afford to finally work with a designer or architect to design your own home. You’ve called several builders and they’ve given you standard price per square foot costing metrics, and you feel like you’re ready to take the leap. Here are 5 external factors you should watch for that could derail your quest for design freedom.
Interest Rate Hikes
These can be volatile times globally and economically, and rising and falling of interest rates can make or break projects before the ever get off the ground. A full percentage hike over a year or so, can make the difference between moving forward with a project or not. For example, if you are taking a $650k loan, and the interest rate increases by 1%, your payments will spike monthly by $400, and you’ll pay almost $150k more for your project over a 30 year term, assuming it stays at that rate. That’s a lot of cake, and it may be too much for some. It may be obvious, but my advice here is to get as much cash together as you’re able before you start, so you’re borrowing less, and less vulnerable to interest rate swings.
Regional Trade Pricing
This one can affect things quite a bit. Depending on the region you’re looking to build in, you’ll be dependent on trade pricing, which will be dependent on work availability. This is generally less true the larger the center is, but in medium to smaller markets, this is definitely a major factor in project pricing. If construction in your region is slow or slowing, you’ll be happy to know that pricing will be more regional. More trades will be lean for work, and will be more inclined to price aggressively to get work, and the inverse is certainly true. When business is booming, customers will pay a different price than when it’s slow. A standard practice for many builders is to say no to renovation work in favor of new builds, until the market slows down. This is purely a timing thing, and there’s not much that can be done, unless you’re able to wait for an optimal window.
Global Commodity Pricing
Whether we like it or not, a new global economy is upon us, with greater volatility at hand. Tariffs and trade wars, imports and exports, shipping costs, these things can influence the price of goods overnight. The first time in recent memory was during COVID, where lumber prices spiked over 200%, nearly overnight, and certain products were simply no longer available. This scarcity market sewered the construction industry in many markets for a time, and certainly drove pricing. That level of volatility is obviously very unusual, but the economic landscape is certainly less predictable than it once was. No longer are there steady, linear progressions that follow the inflation rate, commodity prices have the ability to blow up budgets in short order.
DCCs
This one is more project dependent than the others, but is still sneaky and can blow up project budgets. DCCs are Development Cost Charges, and they can be a rude awakening for homeowners, and arrive much too late to course correct. Development Cost Charges are cost levied by either the Municipality or Regional District, in America it would be your county. Let’s say you buy a lot that’s at the end of a country road outside of a medium sized city. The city has services running to the last house on the street but no further. If you’re asking for the city to provide you sewer, water and electricity, they will charge you to bring all those services to the lot line, that’s the easiest way to explain it. This can happen even if you live in town. If you’re looking for an upgrade in electricity amperage, or the upgrading the water supply, the city can charge you to upgrade their infrastructure, and it won’t be cheap. Like tens of thousands. The really crappy part is that you won’t know until you’ve purchased the lot and are ready to submit for permit. There are ways you can find out prior to buying the lot, I would ask your realtor to do some investigating prior to signing on the dotted line.
Hope this helps, thanks for reading…
Aaron
