3 Big Steps to Your New Architect Designed House with No Loan is how this Architectural firm is doing this very process right now: getting a new Architect-designed house and with no loan required.
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Does that mean that no money or capital value is required? Quite the opposite. You have to already have a substantial amount of pre-paid investment in order to pull off what appears to be this magic act. But this method works and makes sense, once you understand how to accomplish it.
First: THIS IS REAL. This Architectural firm is doing it right now. This is not fiction. And it is legal. Nothing improper at all. In a nutshell: it is like the 3D mind game: Rubik’s Cube. That’s the hand-sized cube with primary colors on each side, divided into multiple sections. The object of the game is to get the scrambled colors on each side of the cube to each be one of the primary colors. And that’s sort of what is required in this Architect’s 3 BIG STEPS method to obtaining your new Architect designed house with no loan involved. Sound impossible? You’ll see: it is very possible. It just takes logical, sound planning. At the end of this article, you’ll probably sit back and say: “Of course! There’s nothing magic about this. You’re just taking money from one pocket and putting in into another.” Yes: that’s exactly what is going on here.
PREREQUISITES
A. You need to already own the land on which you intend to build your future Architect-designed dream house.
B. You need to already own your existing house (no outstanding debt, or very little).
C. You need to have a realistic construction budget in mind and work with your Architect and allow them to help you make certain critical decisions so that the economics of this 3 BIG STEPS process works. The sides of the mathematical equation have to balance.
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D. You will need a separate fund with a chunk of cash in it for items/ features that exceed the income generated by the sale of your existing house.
E. You should also have another General Savings account(s) to protect you in the event that unexpected things happen, which often occurs in construction projects.
F. Once again: once this is explained in writing, in this article, you’re going to say: “Sure. That makes sense. No magic there.” However, there may be some divine guidance at certain points in the process, as it takes large things to come together in just the right way for things to evolve properly and in a timely manner. So a healthy amount of prayer may help you. Certainly can’t hurt.
DEFINITION OF TERMS AND FUNDS
1. CLOSING AMOUNT 1: Closing Cash Amount from Existing House Sale that you walk away with free and clear at the sale (your Real Estate Attorney’s HUD form defines this amount). This is cash (usually in the hundreds of thousands of dollars (or more) that you receive when you complete the sale of your existing house that you own outright.
2. INCREASED FEATURE SAVINGS AMOUNT 2: the amount of cash you have in a separate savings account that is there to help you pay for increased size, features and quality in your new house, in addition to the funds provided from the Closing Amount 1. This in cash you already have.
3. RENTAL HOUSE SAVINGS 3A: amount of cash you need to have saved to use to pay rent on a leased house/condo/apartment while your new house is under construction. This in cash you already have.
RENTAL HOUSE COST 3B: this is what you will have to pay for your rental lodging.
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4. OWNER CONSTRUCTION ITEMS YOU PAY FOR 4: this is a separate fund that you use to directly pay for certain items for which you don’t want your GC paying. This in cash you already have.
5. CHANGE ORDERS 5: these are typically improvements you pay additionally to your Contractor to add better features to your project, after you have already signed the main contract with them. These typically increase the cost of construction.
6. MAIN GC CONSTRUCTION CONTRACT PRICE 6: this is the main agreement you and your Contractor sign, wherein they agree to build your house (hopefully for a fixed price amount of cash).
STEP 1A & 1B
ARCHITECT HOUSE DESIGN, GC PRICE & CONTRACT
A. Have your future house designed by a Licensed, competent Architect that specializes in custom residences, and in the type of environment where you want to live.
For instance: HOME ARCHITECTS ® is a leading Mountain residential Architect, across the USA and the planet.
B. Pay your Architect to help you find the right General Contractor (GC).
This is a crucial step most people miss. And it can take time. For instance, it took this firm 7 months to find a GC in one part of a specialized mountain region to find the right GC for the construction of their Senior Staff Architect.
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They went through a dozen other GCs closest to the project site and every one of them would only price the project as a “Cost Plus” method. That’s where the GC charges you whatever it might cost them, using whomever they want as their subcontractors, then they typically tack on another 15% to 20% or so, no matter how much it costs. Usually, only very wealthy people can afford such a method of GC operation. The Staff Architect at the firm certainly couldn’t take that risk. And there was no reason for any GC to demand Cost Plus, because the firm prepared 38 sheets of drawings and specifications, carefully detailing what the project design and specifics would require. No guesswork. However, skimpy drawings, no specs and many unknowns are the only reason for Cost Plus GC contracts. See this related online article to better understand this: Cost Plus versus Fixed Price Construction Contracts. So, when you hire the appropriate Architect to design your dream house and pay them to prepare a properly detailed set of documents, the hope is that there will exist a GC willing to build your house based on those detailed documents for a Fixed Price. That’s the goal, if at all possible and if a Fixed Price GC can be found willing to take on the project for a reasonable price. THIS IS A CRITICAL STEP. Your circumstances may or may not allow for this painstaking and time consuming search. But if they do, the pay off can be hundreds of thousands of saved dollars.
What you want to establish is a construction contract price from the GC that is no more than the combined amounts you can obtain from the
CLOSING AMOUNT 1 and the
INCREASED FEATURE SAVINGS AMOUNT 2.
Why: because this is the main equation:
MAIN GC CONSTRUCTION CONTRACT PRICE 6 +
RENTAL HOUSE COST 3B+
OWNER CONSTRUCTION ITEMS YOU PAY FOR 4+
CHANGE ORDERS 5
=
CLOSING AMOUNT 1 and the
INCREASED FEATURE SAVINGS AMOUNT 2.
However, let’s modify the equation a little: You should really bump the amount of cash in the Savings 2 fund to be perhaps 20% to 40% MORE than the Contract Price 6. Some Architects think it should even be 100% more.
Why: because S**t happens during construction. Be Prepared (Boy Scout’s motto). Rarely does any construction project conclude costing exactly what the amount planned for indicated at the onset of construction. Like what? Well, how about the old classic: “Concealed Existing Conditions?” What concealed conditions in a new house project? How about the soil on which the house is built? This firm has seen where tens of thousands of dollars had to be approved in construction Change Orders due to unconsolidated earth under the surface, which had to be removed, and foundations taken to a lower depth than engineered. That’s not free. Or the reverse: bedrock nearer to the surface (even soil borings can miss this), which may require blasting, or other more involved precautions for foundation securement than originally planned. And there are more. If you live long enough, you see more and more.
But that’s really not the only reason why you should put more into the INCREASED FEATURE SAVINGS AMOUNT 2. Why: YOU. Huh? Me? Yes, YOU. Because owners of new houses are their own worst enemy when it comes to construction cost. Like what?
How about: you decide you want the SubZero and Wolf appliances instead of the Frigidaire? That can be a $60,000 decision. Don’t believe us? Price them out. You’ll see. Or you decide you want the high-end heart pine recycled distressed historic wide plank flooring with dowels, instead of the low end white pine closet boards, with exposed face nails. Once again: change in cost? from around $2.50/sf to perhaps $11 to $14/sf. Overall change for a 3,000 HSF house? Around $34,500. Such things are not like changing the color of paint on a wall. And how about those wood ceilings you’d prefer, rather than drywall? Or Brazilian Quartz vein counters instead of lower end beige granite? Tens of thousands of dollars. And there’s much more that you want. And you will find a way to get it. Usually that will end in you signing and paying for Change Orders, paying the GC more for those items that were not included in your original documents upon which your Main GC Contract 6 is based. So: word to the wise: have a substantial additional savings fund from which you can take funds to not only pay for more house than your Closing Amount 1 gives you, but to also cover probable change orders.
SECRET INFORMATION: the construction cost of your new house is going to always be MORE than you want to pay a Contractor to build it. Therefore, from the beginning, tell your Architect to make the house as compact as you can reasonably live with, and as plain in materials, features and other aspects as you can accept. Because ultimately, no matter what you say, how much you can afford to pay will start dictating nearly everything. For instance, nice mountain houses typically go for from between $200 to well over $350/HSF. And as another example: this firm’s Staff Architect could not afford that. The math of the equations in the Excel spreadsheet went “Tilt.”
The magic number turned out to be around $166/HSF. Now then, this is a significant reduction in the cost of most mountain houses. And here’s the part that most Owners don’t understand: no GC is going to simply reduce the construction cost just because you want them to do so. No way. They won’t give you a $250/SF house for $166/SF. Uh-uh. So what needed to happen to get the cost down? The Architect (his own client) made it smaller. The main house is only 1,987 HSF. And there was a Phase 2 with a 200 HSF pantry, and a 2.5 car garage. He made the exterior walls 70% prefinished industrial metal warehouse siding. No painting necessary by local painters. The interior: all ceilings and walls: drywall. Floors: the lowest end possible wood planks: white pine closet shelving boards, lightly distressed (to conceal future bruising). Windows: colored vinyl (however the insulated glass is identical to high end Loewen or Marvin). Cabinets: partical board core, with real wood then veneer on vertical surface, with hardwood, prefinished doors. Lower end granite counters. Appliances: Frigidaire Pro series stainless steel. On and on. Nothing bad. Just carefully selected value-oriented items and would decrease the cost of the Contractor, which allowed the house to be built for less than most other conventional houses in the area. The result: a more contemporary mountain modern house, built for around $90/hsf less than most other houses in the region, but with MORE glass facing an incredible mountain view. And and much more generous circular entrance driveway, with some very nice future features designed, but not yet built.
STEP 2
SELL YOUR HOUSE
FOR THE AMOUNT OF MONEY YOU NEED TO PROVIDE THE FUNDS NECESSARY
Necessary for what: to satisfy the equation.
However, DO NOT ATTEMPT TO SELL YOUR EXISTING HOUSE FOR MORE THAN A REASONABLE AMOUNT. And a reasonable amount may very well be slightly under the going market rate, to help secure a swift sale. And you WILL want a swift sale. So much depends on it. Like what: like the GC Contract Amount 6. They’re not going to hold your price indefinitely. 30-60-90 days max. After that, you’re going to be looking a Change Order simply to cover increased market costs in return for nothing. So don’t get greedy on the sales amount for your house. And don’t think, using this method that you “don’t have to sell”.
If you’re using this 3 BIG STEPS method, you do need to sell your existing house. Listen carefully to your Real Estate Broker. She/he doesn’t make a penny unless your house sells, so they do want it to sell. And they make more if your house sells for more. So they don’t want you or them to lose money on the sale. Ask your Broker to prepare a CMA (Comparative Market Analysis) for similar houses in your area to understand comparable house values. Don’t think that because you over personalized with polka-dot wallpaper that makes your house worth more to buyer. It may detract. Same goes for other improvements. Talk to an experience Real Estate Broker before making random improvements in your house, so that the improvements you make help increase the value of your house. They may not, or they may hurt you. Consult a professional.
All the above being said, NEVER FORCE YOUR BROKER TO LIST YOUR HOUSE AT A HIGHER PRICE THAN THEY HONESTLY RECOMMEND. You won’t get the amount you want. And it will take far longer to sell. And in the end, you may actually get even less than comparative market value, due to an overly-aggressive initial price. Other Real Estate Professionals smell blood in the water and advise their clients accordingly. If a property has been on the market for hundreds of days or years, they know you are getting desperate to sell. That doesn’t help your market price. It hurts it. So don’t make this mistake that so many triple A personality sellers do. Back off and listen to your Broker. You’ll be glad you did and your life will move forward int a bright new direction: to your dream house.
Now then, the planning for this sale STARTS BEFORE YOU BUY IT. In other words, years ago, hopefully you bought your existing house in an economic downturn (a “bust” rather than a “boom”). Because what wealthy investors have always said is true: “Buy low, sell high.” But in terms of real estate, it may be more: “Buy low, sell at future improved amounts.” And you can do certain things, after you bought low, over the years, to improve your sale value. For instance: if you bought a 3BR/2.5Ba ordinary plain house in a typical neighborhood and it was perhaps 1,728 HSF when you bought it, and it has an unfinished basement, you can always finish that basement. Perhaps your house is then improved to become a 2,300 HSF (Heated Square Feet) house. And there was an empty Zone 3 to the AHU (Air Handler Unit) control panel allowing you to simply plug that into another zone damper to give your basement HVAC for less than $1,000. And you didn’t go crazy with the walls, floors and ceilings and lighting. Just give them about another 600 HSF for not much cost to you. So: perhaps a house you paid $200k for in a bust you end up selling 7 years later for $290k. And after closing costs, maybe you walk with around $280k. So look there: you got $80k more than you paid for it. And chances are, your CPA will tell you there’s no taxes on that capital gain, because you are immediately turning that around and reinvesting that into a new house. That’s critical to this 3 BIG STEPS method. You have to invest wisely. Plan years ahead of time. And do simple things: big bang for little bucks. For instance: maybe you splurge $3,000 to have a stone mason clad a couple of front porch posts with native rock. Looks great. Helps resale speed. Kitchen improvements are usually #1, but those are also expensive, so hopefully you already have granite counters, an island, nice lighting and cabinetry there.
STEP 3
A: RENT A PLACE TO LIVE
B: HAVE GC BUILD NEW HOUSE
You should have a RENTAL HOUSE SAVINGS 3 that you use to pay for a place to live while the new house is under construction. This fund could be part of the equation you establish as coming from the CLOSING AMOUNT 1. Or from other savings you had. But you definitely need this amount (unless you are independently wealthy). The amount of time to build a new house may vary from 6 to 8 months for a smaller project, to over 30 months for a larger, more detailed construction effort. And rental homes/ condos/ apartments vary greatly in size, cost and features, not to mention location. If you’re trying to obtain a rental close to the project site, that makes it even more difficult to find a place for what you may wish to pay. Somewhere between $1,000 to $2,000 a month would not be unusual for a 2 to 3 BR (BedRoom) place with 2Ba (Baths), although this can and will vary considerably. But let’s say it was $1,500/month. If your house takes a year to build (it always takes longer than you think it will), that’s at least $15,000 for temporary lodging. And of course, normal costs of utilities are over and above that, normally. So that accrued value you made on the sale of your house is starting to get some bites taken out of it.
Now some math equation variables to make for a happy ending:
The amount of
CLOSING AMOUNT 1 and the
INCREASED FEATURE SAVINGS AMOUNT 2
must not be less than the total costs you are going to incur for ALL of your expenses, which are typically:
MAIN GC CONSTRUCTION CONTRACT PRICE 6 +
RENTAL HOUSE COST 3B+
OWNER CONSTRUCTION ITEMS YOU PAY FOR 4+
CHANGE ORDERS 5
However, there may be something in your project that makes it even more expensive. Never cheat on the numbers. Always imagine that unknowns are higher that you think, never less.
The ideal: having Steps 1, 2, & 3 all happen in perfect sequence, with no delays between each of them. That is the perfect order you want. If there is too much time between any step, there will be economic pain. You do not want that. You want each step flowing smoothly from one to the next. This takes planning and patience, on the part of all parties, and as said before, most likely prayer. And having a Licensed Architect manage the entire process for you can certainly help take the edge off. Why: because they are going to know people in construction and have other resources that will speed things along faster than you could ever accomplish on your own. And it will still take long than you imagine.
SUMMARY
STEP 1A & 1B
ARCHITECT HOUSE DESIGN, GC PRICE & CONTRACT
STEP 2
SELL YOUR HOUSE
STEP 3
A: RENT A PLACE TO LIVE
B: HAVE GC BUILD NEW HOUSE
And don’t forget: hire an Architect to manage the process for you.
tags: 3 big steps to architect designed house with no loan, cashiers, lake toxaway, highlands, glenville, aspen, telluride, sevierville, post and beam, timber frame