A construction project finishing on time has always been a rare event. Since the onset of the global pandemic in 2020 the entire world has been upside down. Construction projects have been facing material and labor shortages for two years now. With interest rates and inflation on the rise and the dark cloud of recession upon us construction has seen a downturn. However, home repair and renovation must forge forward. In this blog we discuss what considerations should homeowners be aware of when undergoing home construction.
First, how did we get here?
reported in January 2022 that “Construction project delays were up 100% due to COVID despite projection that the construction industry was to make a comeback. Construct Connect put a pause on updating their interactive project delay report, most likely because it became too difficult to stay on top of all the delays. To make matters worse, Putin decided to start a war. We in no way put our hardships in the same cosmic plane as Ukraine’s absolute nightmare. Putin’s wrath set off the ever rising fuel cost that we see not only at the pump but attached to all goods and has essentially caused the global economy to be in utter disarray. Russia and Ukraine are critical suppliers of oil and natural gas, metals, raw materials, and even some machinery. If you add in the rising interest rates and the absurd inflation trends, you are creating a perfect storm for construction delays. Karl Kreutziger was quoted in the LA Business Journal, in reference to a multifamily project his company had bid on: “We priced it a year ago, but the budget went up about 12% over the past year…” which in turn caused the developer to delay the project. It seems no matter which way you look, construction is met with adversity. Unfortunately, some home projects cannot wait and you have to tackle them head on.
How Do You Finance Your Home Construction Project?
With one roadblock after another, we aim to arm you with knowledge to help you rethink your home construction projects and give you helpful tips on ways to reduce cost. We previously suggested that you do your homework when discussing getting a mortgage. I think it is safe to say the more educated you are, the better off you will be in any arena of life. Before jumping into a project, take the time to think about the scope of work. When starting a home repair project you might need to take out a construction loan in order to get work done. A rookie mistake is taking the contractor or repair person’s lender they put forth. Often a contractor will present to you a lender for your home repair cost. You do not have to take their suggestion, you can get your own construction loan.
There are several different types of construction loans but for this blog we want to give you a brief overview of what a construction loan is. A construction only loan is a short term loan that usually requires a higher credit score, minimum of 620 and requires a 20-25% down payment. Interest rates are typically higher than a traditional loan. Construction loans are short term and are disbursed in phases at various stages of the project. So, what is the advantage? Construction loans can close in 7-10 business days as opposed to 2 months with a traditional loan and they offer flexible terms based upon the needs of your project.
Our friends at Home Depot offer project loans for up to $55,000.00 Home Depot allows you 6 months to purchase everything for your project and then pay off the debt with fixed monthly payments and flexibility in regards to the timeline.
Home Depot’s Loan has four tiers; above is the fee schedule on your loan. Source: Home Depot Credit Center
Before you begin your project, do your research. Saving money on a project is in your hands. You can and should negotiate to get the best deal. Get quotes, figure out a budget whatever number you arrive at most likely, the cost will increase by 10% so plan accordingly.
Tips from the Pros, that’s us: Twin Home Buyer
Often if you go directly to the supplier you will save time. We highly recommend you source construction material yourself. Contractors will overcharge you and over buy. They will spend two hours in Home Depot as opposed to working on your home. Contractors have even been known to charge a material handling fee. Who do you think will have more care for your brand new doors: you or hired help? Do your research, what is the cost of pouring concrete as opposed to laying down pavers. There has been a continued shortage of lumber and steel; maybe you can use concrete, which I mind you has slightly decreased in price. Or look into using cross laminated timber, it is equal in strength to steel and has a better environmental impact. Take control of the material cost by taking the lead. You will find the best deal on that vanity you wanted, where a contractor is most likely going to go to the most convenient source and not necessarily get the best deal.
Contractors have been adding gas surcharges hoping it goes unnoticed. Do the cost benefit analysis: delivery as opposed to picking up material yourself. If you know there is a shortage of materials starting sourcing supplies before even hiring a contractor. Due to the current disarray it behooves you to think 3 steps ahead if not 4-5. Call ahead, don’t just order. Speak with the supplier, get a firm timeline. Insist upon it. Ask for their honesty, you would be surprised how they are willing to sympathize and come up with solutions. For example, maybe there’s a similar door that is similar to the one you picked out that has a surplus of supply. Be nosey, ask where their factory is? If your materials are being manufactured in a COVID hot zone most likely they have labor shortages and output delays. Getting the inside scoop will serve you well.
We are huge advocates of encouraging home owners to get down and dirty. A lot of the project may require a professional but you may lend a hand and end up saving a ton. Challenge yourself for example by handling the painting. Often contractors need to prepare a site and will need to clean the space or strip the floors, see if you can negotiate to do this part of the project. You are more capable than you think; we believe in you. Contractors will say they won’t warranty the work you do or even be as bold to say you can’t work on your project. Simply, not true. Do not let a contractor bamboozle you, always remember you are in charge.
The challenges of the economy and labor shortages are here to stay. You however, are in the driver seat not your hired contractor. In our previous blog
We discussed how to find a good contractor. In this blog we aimed to arm you with the confidence to take the reins and address material shortage and inflation cost head on.
Your shrewd proactive approach to your home project can save you time and money.