Peace of Mind Starts With Your Budget
I worked on 4 different Cost-Plus Contracts in 2022. We unpacked the details involved in this kind of contract in a previous blog, but, essentially, the clients saw all of our numbers on the job and were on the hook for any overages to the budget. For the most part, these projects all came in with budget overages of less than 1% of the project cost (which is amazing!). However, I noticed that when clients selected their finish-out (think lighting, plumbing fixtures, flooring, hardware, all the pretty things), they wished they had a bigger finish-out budget. No matter how small or vast the budget, the client had typically obtained the largest construction loan they could afford. As a result, they tended to feel stressed about every little decision along the way because they could just barely afford the project. This inevitably results in a miserable construction experience for both the client and builder. Financial strain supercharges every decision with emotion.
On a smaller scale, consider a car- I could probably go out today and find somebody to loan me money for a brand-new Lexus with all the bells and whistles. But because this would be a financial strain for me, I could never enjoy the car. I would need to sacrifice my current quality of life and luxuries just for the fancy car. So I would miserably drive the car around town. Is that car really worth it? The same concept applies to a custom home.
I would strongly advise my future clients to not max out on the largest loan possible. I would strongly advise my future clients to have some fluff in their budget so that the unexpected is less stressful and they can comfortably pick their actual favorites when it’s time to select wood flooring and bathroom tile. One strategy I recommend is to budget for 5-10% less than your max in order to establish a cash reserve. Another easy way to have breathing room in your budget is to not build the biggest house possible. If a house costs you $225/square foot, then 100 square feet would cost $22,500. Now, some people reading this may genuinely need the larger home over a nicer finish out. Everyone’s situation is different! All I want to do is encourage you to not bite off more than you can chew with a loan, and remind you that peace of mind is ALWAYS better than a bigger or fancier home. Build something you will love, not something you will regret.
