Rules of Thumb

OK these pictures have nothing to do with our cottage project but they have to make you smile!

Kelsey and Jay are out-of-town and we are babysitting their "Dottie".  She's the light colored one.  I think I know why Dottie likes to stay at Grandma's house!

I like “rules of thumb”.  They give you a rough estimate or rough guidelines to use in planning.  All my life I’ve used several rules of thumb when it comes to personal financial planning.  Maximum mortgage payment as a % of take home pay, % of stocks to have in an investment portfolio, etc.  I’m also a big “goals” person.  I think goals give you the vision you need to be disciplined enough to achieve them.

After building (5) houses in our lifetime I have some construction rules of thumb.  They are not entirely unique.  Many I’ve read through the years then either tried to confirm within my own projects. 

Here are a few related to total cost estimates.

In a typical average house the breakdown is as follows:

            25%  Materials

            25%  Labor

            25%  Land

            25%  General Contractor Mark Up

Does that mean the general contractor makes a 25% profit?  No.  Many times they have employees and significant overhead costs so realistically their profit margin is probably half of that.

I’ve read where people say take your material package times 2 or times 3.  I would lean towards times 3. 

Another one I use for a one story is $150 per square foot not including the lot and $75 per square foot for the second floor.  This is not a house with Granite counters and high end accessories.  These are costs having a contractor do everything for you and using average quality products. 

So what does that mean if you are willing to act as your own general contractor and / or do some of the work yourself?  I would say you can save 10% acting as your own general contractor and another possible 10% if you are willing to do a lot of work yourself.  We’ll talk a little more about “sweat equity” in later posts.

So with my rules-of-thumb noted, here is my preliminary estimate / goal.  Having no plans or quotes yet, having minimal contacts in the area we are building and having not built for several years this could be way off.  Once I have plans and a lumber package I’ll be able to tell if I’m on track or not but here is my GUESS.

1000 sf @ $150          $150,000

  500 sf @ $ 75           $  37,500

1500 sf @ and average of $125 / sf or $187,500 if I was to have someone do it for me.

My goal (not including the land or the lot) is to complete the project at $100 per square foot or $150,000 total.  IF successful I think I can have between $30,000 and $40,000 in equity the day we move in.