Real Estate Investing

Pre-fabricated housing was once relegated to government projects and low-income neighborhoods. Now, a new day has dawned. When housing is built off-site and trucked in, it can make for a much more affordable housing option. But it doesn’t have to be small, rickety or ugly. Prefab has spread its wings and landed in some of the most chic, lux neighborhoods imaginable.

Bonus: It’s usually lower cost. The Washington Post wrote about Barry Bless and Jennifer Watson, who built a two-bedroom, one-bath, 1,150-square-foot mountain abode for $95,000. That’s about $83 per square foot. This is an ultra-modern home, with an open floor plan, hardwood flooring and floor-to-ceiling windows. Additional work needed on the home, like site prep and water/sewer hookup, was handled by the couple and their friends, which the article points out as an obvious cost-cutter.

“But Barry Bless and Jennifer Watson figure that even if contractors had done most of the work, their 1,150-square-foot, two-bedroom, one-bath mountain retreat would have come in at around $150,000. That works out to $130 a square foot, compared with the $200-to-$400-per-square-foot costs of many modern, architect-designed houses.”

Prefab housing has plenty of options. With full-length porches, decks, garages, fireplaces, basements, stone and brick exterior, these houses are virtually indistinguishable from their more traditional counterparts. However, prefab is really making a name for itself in modern housing design, something which would normally require elite architects and seemingly endless pockets. The boxy, airy, lofty looks are more popular around the U.S. and have also caught on in other countries like Sweden, where partnerships have been formed with Ikea modern furniture manufacturer.

OpenHouse NYC blog offers a video tour of a fabulous prefab home and interviews with real estate experts. Marcia Altman, a realtor in West Hampton, tells the blog that the only remaining stigma attached to prefab, or modular, housing is among “the uninformed.” Essentially, she says, this option helps home buyers get “a little more house for a little less money.” The prefab housing option may increase in cost as demand and respect grows, particularly when the limping housing market recovers and home prices soar once again. For homebuyers on a budget, it’s an option worth digging into.

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.

In the complex process of building a home, it can be easy to forget one of the most important steps - hiring a reputable builder. A builder may seem nice, but do they have all the insurance coverage they need? If not, you could be footing an expensive bill in the event of an injury on the job site, which is your home.

Builder’s risk insurance provides protection of the property, building and materials. This policy is most often purchased by homeowners, but can be purchased by the general contractor if set forth in the construction contract.

General liability insurance covers most accidents and injuries on the job site. This is typically purchased by the general contractor.

Professional liability insurance protects the professional from liability in the event of a mistake on the job site. For instance, there was a design mistake or the blueprints were not followed closely enough.

Workman’s compensation insurance is required of all general contractors who have employees working directly under their supervision. If a general contractor claims to hire only subcontractors and there are no employees working for them, get that claim in writing.

Not all states require insurance coverage, but hiring a general contractor who has the appropriate insurance can provide added peace of mind in more ways than one. If a professional can provide proof of appropriate and complete insurance coverage, it is less likely that they are a “fly by night” organization that will take advantage of you and your money, leaving the job half-complete.