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It may sound counter-intuitive to think paying for a building quote saves money when considering building your dream home but in my most recent article I illustrate why it is essential in order to save money.
Questions I am asked often are How did I finance my first property? How did I raise capital to start my business? How did I get myself into this, one of the most expensive housing markets in the world?
Let’s make no mistake about it, it is tough to get into the Melbourne and Sydney housing markets. After all, along with Monaco, Hong Kong, Singapore and Shanghai, the Melbourne and Sydney markets are some of the most expensive real estate in the world. Whilst it is difficult in this climate to obtain finance for your first home or next development, it is not by any stretch impossible.
So why is a builder discussing finance? Because I was not always a builder with my own construction company. In truth, my journey started almost 12 years ago when my 19 year-old self saw an opportunity to buy into the market at the low end. I was at university studying business with a keen interest in real estate. What I managed to purchase was a 30sqm studio apartment in East Melbourne for $175,000.
The studio was tiny, barely enough room to swing a cat but I knew location was key here and a sudden drop in the prices of the apartments in the block would be short-lived so immediate capital growth was more than likely. So how does a 19-year old university student working 30 hours a week afford a 175,000 apartment? Well, times were admittedly different than with lenders offering 105% finance, I knew it was a risk but a worthwhile one for me. I used the rent that I would obtain on this property to prove serviceability and I also took out the first home buyers grant to help with the deposit. My opinion was that I would rent it out for a year, move in and renovate it when I was working full time and fresh out of university. My feeling was by then the capital growth in the apartment would have eventuated so I could finance my next property. My calculated risk turned out to be accurate and after 1.5 years the property had soared to $255k in value, enough for me to purchase a “BPOS” (an acronym I like to describe houses, meaning a beautiful piece of sh*t which I can add value to). I never started out to be a builder and developer but the bug quickly took hold of me and now several developments later and I am still very much doing the same thing as I did back then.
People often say, well that is great but how do I get into the market now? As now, finance is much more stringent in this post GFC era especially with lenders not willing to put their necks out with a royal commission floating around. This is a valid point and one that I too have struggled with as obtaining finance for my projects has also become more difficult. However, it is not impossible.
Currently, both state and federal governments are giving away money to first home buyers to get into the market. What has not changed since 12 years ago is that most people who are willing to take advantage of these schemes will most likely need to put stepping stones in place in order to get to their dream home. This is because their first property will most likely need to be a property of $600k or less in order to take advantage of the state governments off the plan stamp duty concessions. This is a scheme set up by the state government whereby you pay no stamp duty on the dutiable value of a property up to $550,000 once taking into consideration off-the-plan concessions. As a result of the scheme, first home buyers can save $25,000 that a non-first home buyer would otherwise have to pay.
Secondly, the state government of Victoria still has in place a first home owner grant whereby first homeowners are entitled to $10,000 when they purchase a home less than $750,000. They are also entitled to enhance FHOG of $20,000 when this property is purchased in a regional area. Other states also have similar schemes in place for first homeowners.
Thirdly, a great initiative that the federal government has in place to help first homeowners is the first home buyers savings scheme. This is a new scheme that allows people to make voluntary contributions into their super account which they can then withdraw later for the purposes of purchasing their first home. Up to $15,000 a year of voluntary contributions can be made in a financial year. A maximum of $30,000 can be released at a later day plus associated earnings. What is so good about this scheme is that performing super funds will help drive your savings further than a typical cash savings account whilst too having tax concessions applied.
Here are my tips for people trying to get into the market:
1) Use the government schemes and incentives to your advantage
2) Purchase a BPOS, something that you can add value to and reap the rewards from later. It may mean getting your hands dirty but the long-term benefits will be worth it. Few people buy Ferraris for a first car and houses are no different. You need to set the necessary stepping stones in place to your eventual dream home and realise it may take a couple of homes before you get to your dream destination and home.
3) Open a first home buyers savings account or, if not your first home, open an investment account that will most likely perform better than your typical cash savings account.
4) If you decide to build your own home, note that times have changed with regards to owner building. Finance for owner-builders is becoming much more stringent and the finance cost is becoming much higher than the potential savings made. The Victorian building association is to making life harder for owner-builders as a result of poorly finished homes.
5) Be disciplined with your savings and monitor the performance of your investments. The decisions you make now will have a long-term impact on your lifestyle down the track.
Whilst the housing market is difficult to get into at the moment, it is not impossible so long as you willing to use the rights tools and schemes to your advantage whilst using a little financial discipline.
For links to the discussed government schemes and incentives see below:
Building your dream home and why construction software is critical?
If a courier used a horse to deliver your parcel, would you use that courier? Probably not.
In building, software is probably not the first thing that comes to mind However, it could be one of the most important topics you ever discuss with your potential builder.
Times have changed, the construction industry is evolving every day with changes in legislation and the requirements that arise thereof. If you take one look at the latest edition of the Rawlinson’s Guide (A guide that shows quarterly movement in trade and material pricing) you will see that pricing in the constructions industry moves far too regularly. As builders, it is becoming almost impossible to stay up to date with all of these important issues with “old school” methods. This is where the importance of construction software has become a fundamental element of the construction process.
From the perspective of the client, it is critical that the client asks how their builders stay on top of their business and their construction sites. What software they are using to program the scheduling of their jobs? How they undertake take-offs (measure their quantities) and how they stay-on-top and ahead of all changes in the construction industry?
At Milara Building and Development, we see our investment in software as our point of difference to some other builders. By employing the latest project management and estimating software we are able to stay up to date with the latest rates for our industry and liaise with our clients in a way which is completely transparent. We keep our most valuable asset, our clients, constantly in the loop throughout the project and inform them when decisions need to be made to keep the project on track. For our business, it simply would be a completely false economy to not have our suite of software in place.
By employing the latest project management and estimating software we are able to stay up to date with the latest rates for our industry and liaise with our clients in a way which is completely transparent.
Whilst you would not employ a builder purely because they have taken the latest software onboard, it should be taken into consideration when deciding on your builder. Unless you like your mail delivered slowly, builders that deem it unnecessary to have best practice software in place should be approached and considered with caution.
Demo Day. This original split level home is making way for our latest Dual Executive Townhouse Residence. Stay tuned. #MilaraBD #Milara #MBD #Demolition #Building #Construction #BulleenExecutiveTownhouses (at Bulleen, Victoria, Australia)
Today we are at the @victorian_building_authority building regulations seminar for 2018 getting all the latest important updates for the industry. It always key to stay updated with industry standards and regulations #MilaraBD #Milara #MBD #Construction #Building #development #Victoria #Melbourne (at Plenty Ranges Arts and Convention Centre)
Documentation requirements for an accurate build price. What are the minimum requirements?
Last fortnight I wrote an article about the importance of avoiding per square meter rates for determining the cost of a project. I also wrote about the importance of why builders who choose to apply such a technique should be avoided. This week I delve a little further into that topic, as this article almost forms part II of that piece. This is because proper and accurate documentation goes hand in hand with obtaining an accurate build price for your home or development.
Since starting Milara Building and Development at the beginning of this year I have already been asked to price some 50 different homes and developments. Almost, 3 out of 4 of these have wasted both the time of the potential clients and my own time. While I love to see potential clients as enthusiastic in their approach to building as I am, seeking out prices to prematurely (Which can mean as soon as they commence the town planning process or in some cases even before they have purchased land) leads to disappointment when I cannot provide them a quote. Insufficient documentation or in many cases little to no documentation at all, not only results in a waste of a client’s time, but it can also expose the client to a risk in price rises down the track. Prices are prematurely presented with significant caveats which can leave a client out of pocket when the build commences as no allowances are made for items where appropriate documentation has not been provided.
There is a typically a misconception that exists here whereby some people believe they will be able to obtain an accurate build price with little to no adequate documentation which, in reality, is simply not the case.
To answer the question in my headline, in order for any builder to accurately price any project, there is a requirement to have at the very minimum the following key documents. I will detail why these items are required to help the public understand their importance in obtaining an accurate build price:
- Soil Report
A soil report is a document that provides conditions of the site beneath the ground. It provides key information as to what type of foundation is appropriate as well as what type of soil will be encountered at certain depths. This is critical for builders to know as it will certainly determine the best type of footings system for the site.
- Engineering (structural drawings)
Structural drawings are vital to any project as it shows each of the footing, wall and roof elements and the minimum strength requirements for each of these items based on the site. It provides details as to how each of these elements are to be built. The cost of the project depends significantly on the level of engineering requirements for the project. So often I am requested to provide a price without these drawings. It is counterintuitive, trying to give any indication on price without these drawings in place for the above-mentioned reasons.
- Working Drawings (Architectural drawings)
Working drawings are normally the first point of call for any builder to draw upon. They provide key information on site conditions, elevations of the site and home, floor plans for the project, external and internal material schedules and often other crucial aspects depending on the scale of the project. Without these documents in place, engineering the project cannot happen. In addition to this, without these documents, not even an accurate indicative price can be provided.
- Electrical Drawing
This normally forms part of your working drawing package, nonetheless all too often I receive very preliminary electrical drawings with little information as to what type of light fittings will be in place, the quantity of general power outlets is misleading and all to often the detail is far from the reality of what the client will most likely be after. Always ensure you are clear what type of lighting you will want to achieve for your project and the quantity of outlets you will wish to have. Data and security is also often missed and this too can add or reduce to the cost of your project. It is also important to ascertain electrical pit requirements for the site.
Civil Information
Whilst this is less important for a standard house that will often connect directly to the legal point of discharge on larger scale projects civil requirements can add tens if not hundreds of thousands of dollars to your project. Always ensure you have local water authority information as well as council overlay information and that you have ascertained possible civil improvements. Your engineer will be able to point you into the right direction here as well as your architect. Without this information most builders will exclude civil improvements, should they be discovered later this could cause for costs that were not necessarily encountered to begin with.
- Planning Permit
A planning permit is provided by your local council and will outlay what can and cannot be undertaken as part of your project based on their given regulations and neighbourhood character. Sometimes smaller projects and single houses will be excluded from requiring a planning permit but this should always be checked by the council town planner. Planning permits if required can take a great deal of time to be acquired dependent on the complexity of the project, a strong team of consultants will always improve the time taken to obtain a planning permit so be sure that your architect and engineer are familiar with the municipality that you are building within. Once obtained, your builder will require the planning permit to ascertain what conditions have been placed on the site and whether those conditions will add cost to the project. Some examples that add cost to the project that are typical on a planning permit as tree protection zones, vehicle crossing upgrades, asset protection, signage, planting improvements and access constraints.
- Energy Report
Energy reports are key to every project. They determine a rating based on the documentation provided as to how energy efficient the home will be upon completion. They outlay what requirements are needed to achieve the rating denoted. This is important in ascertaining the level of glazing requirements for windows, insulation requirements and other key items. Whilst energy efficiency is great long term, they do add immediate cost to any construction and this will need to be considered by the builder when assessing and providing a price to complete any project.
- Finishes Schedule
Material schedules are often missed and in most instances builders are left to provide prime costs for the supply of different materials that are unknown at the time of the pricing. This will put the project owner at risk should the material cost more than the prime cost allocated. As we all have different expectations in terms of finish it is always best to provide the builder an upfront material schedule to remove any doubt or concern as to what the finish material will cost, schedules such as these simply provide a level of peace of mind for all parties involved.
- Fixtures and Fittings Schedule
Similarly, to a finishes schedule, a fixture and fittings schedule is also important for ensuring you are getting an apple for apples comparison when obtaining prices from your builder. The builder’s life is made easier knowing exactly what the client’s needs and wants are for the project and no items will have question marks hanging over them. By not having this in place you are leaving these prime costs up to the builder which may not be a sufficient amount for what you require or on the contrary it could be overestimating the requirements for the project. This is where rogue builders will take advantage of their clients. Often they place lower prime costs almost knowing their budgets will not be sufficient. Down the track the client opts for a higher specified appliance, for instance, only to be told by their builder that this has not been allowed and in turn places a higher margin on these alternative higher specified fixtures and fittings.
It should be noted that the required documents mentioned above is for your typical custom home or townhouse development and should only be used as a guide as to what are the minimum requirements for an accurate price. Larger scale projects and more complex designs will have further detailed documentation requirements.
Many too will question putting down money for documentation and a design they are not so sure they can afford without a price from a builder. These concerns should be addressed by your design consultants as they will have an idea on how much certain designs will cost and should be able to provide a price range for how much your project will come to. It is imperative that you have these discussions with your consultants early so to that budgets can be achieved.
As builders, we have a duty of care to ourselves and to our clients. By ensuring sufficient detail, design and documentation are provided to the builder for pricing the process is transparent which protects the client from any nasty surprises down the track. It also protects the builder from having to chase up missing details and documentation gaps. The more documentation you can provide, the better off you and the builder will always be.
How much do you charge per square metre for a house to be built?
There is so much wrong with the question. Probably more concerning are the builders who will answer the question without a second thought. I too, often get asked this question for which I often reply how long is a piece of string? The reason I am so blunt with my answer is that like so many detailed services or products there is too little information to provide an accurate estimate.
Those in the market to build a house or development need to be wary of such blunt rates being quoted to them by rogue builders. I often say, builders who are quoting per square or per square meter without a second thought should be avoided, no matter the rate they are suggesting. Only the most complacent of builders will quote with such estimating complacency. This has the potential to quickly expose both themselves and the client when the actual cost to complete is north of their vague estimate.
Of course, I do have an average cost. This is not to be mistaken with a rate that I can confidently give any one client. Every house and development is a different beast with large variances depending on the nature, finish, access and scale of the home or development. I would never use my average cost to complete a project as a rate to apply to a client’s home.
So how do you know how much your project will cost without committing serious resources to that project? In truth, you need to consider approaching an experienced builder or estimator who will be able to, using the information they have at hand including things such as engineering drawings if available, to provide an indicative cost to complete. Builders and estimators will use their expertise and understanding of the project to provide an estimate to construct that takes into consideration every aspect of the build including site conditions, level of finish, potential environmental issues and other important aspects of the build. It is always a good idea to invest in an estimator who can provide at a fee a detailed cost to construct with a trade breakdown. These estimates can too be used to keep builders that you wish to approach honest and provides peace of mind knowing the estimator has no conflict of interest.
It is also important you remain engaged with your architect and engineer who will have a good idea of how much your project will cost. This will help to reduce the possibility of designing something over your budget. Builders and estimators will be better placed to price a project with more documentation at hand including energy reports, engineering documentation, architectural town planning drawings and working drawings, soil report, council information and other important information required to accurately price the project.
In summary, every house and every project is different. It is important you consider your budget early and consult with your building practitioners to ensure you design a project that is suitable. Once that is decided, always invest in detailed, consistent and co-ordinated documentation which your builder and/or estimator can then use to accurately cost your project. Lastly, unless you enjoy gambling and losing, never take the word of a builder who blindly offers a per square or per square metre rate to construct your house or development.
It is a common question that has been asked of me so frequently in my time as a builder. Often, I provide an answer to the person asking the question which is met with both surprise and disappointment. I receive responses such as “I am only building a deck and roof worth a few thousand dollars” or “It is only a renovation, surely I am exempt from needing a building permit”.
There is a common misconception I have found whereby homeowners feel they can do as they please to their own home so long as it is not increasing the home’s footprint or undertaking what they deem to be minor works. This is a trap people should really avoid, it is always best to practice due diligence and ask both your building surveyor and council town planner if a town planning permit is required first and foremost and then if a building permit is too required.
Of course, there are some things that do not need a building permit such as boundary fencing, building maintenance and paintwork. However, in many cases, even small capital improvements may trigger the need for a building permit. Common mistakes are renovations whereby waterproofing is required or where internal walls are being removed to make for larger open spaces. In many cases, new internal beams may be required to cover the load in which that internal wall used to carry before it was removed.
Owner builders too need to be wary of building permits and recent legislative changes. Recent changes in Victoria have meant that owner-builders can only complete one project every five years and they must too ensure that they intend to live in this property. Statutory warranties will still apply in these instances. If you are intending to renovate an investment property or similar you should consider a licensed builder to complete such works to avoid potential penalties and headaches. For further information on this see: Owner Builder Laws Victoria
The key message to take out of the above is this: There is no longer a dollar value that will trigger the need for a building permit. The nature of works to be undertaken is what will trigger the need for such a permit. It is important when deliberating any works you are considering that you contact your local builder, surveyor or government agency such as the Victorian building commission with respect to the need for a building permit. These requirements not only protect future owners of the property but also the person completing the work. It also ensures the work is completed in a fashion that meets Building codes and/or performance requirements set out, Australian standards and high level of building standard.
Further information on building permit requirements see: VBA Building permit requirements
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