Budget Before You Build
Budgeting before you build is a major preliminary step in ensuring you are even able to move into your home once it is completed. The New York Times brought attention to this matter in a recent article.
“Now, however, more than 3 percent of all construction loans are classified as being nonperforming, or have borrowers that are behind on their payments. That is the highest proportion in a decade.”
The article goes on to state that the figure is nowhere near the 18 percent mark that was hit in 1991. It does speculate that this trend could be the downfall of several smaller banks, which have increasingly put their stakes in the less competitive construction loan market.
“Figures compiled by the Federal Deposit Insurance Corporation and released last week show that both midsize and small banks had construction loans outstanding that were greater than their total capital. A decade ago, such loans were equal to only a third of capital for those banks.”
It is important to budget before you build. In figuring construction costs, don’t forget to account for fluctuating materials costs. It is a good idea to talk to a general contractor or architect for a general idea on how much a construction project might cost. You should overbudget on money and time. As an example, the Real Estate blog offers the following advice to real estate investors planning to fix up investment property:
The old saying was to take the costs and triple them. That is an exaggeration but not by much. Most investors do not make a full detailed budget of what is needed for the home improvement project down to the last nail and staple. By being realistic and budgeting for all possible materials you will have a more realistic budget and are a lot less likely to go over budget. You should also plan for any unexpected eventuality that could occur and plan for it in the budget as well to avoid any unexpected and costly problems.
