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Developing A Budget Using The Home Inspection

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Location: Nashville, TN

A really great place to start with the scope of a work for a remodel project is the Home Inspection (typically $500-$1500 depending on your location) that details everything that is in good or bad condition on your project. When you go to sell it, the buyers are going to order one and you want the issues resolved so they can’t take money off the sale price for repairs. A good home inspector is very helpful, I used Southern Comfort Home Inspections (TN Home Inspector), and he gave me a very comprehensive report I used with my contractor to create a thorough scope of work. I gave a copy to all the core trades like electrical, plumbing, and HVAC (Heating, Ventilating, and A/C) to make sure they are accountable for the repairs in their bid (more later on holding contractors accountable, hah).

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Industry standard for enumerating a budget is the CSI code, which is basically a standard code used in construction to account for every cost that can occur in construction. I generally follow a light version like this that Exclusive Holdings LLC developed:

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Initially, I start at the top of a simple Excel spreadsheet and work my way down, deleting any line items that don’t apply to my current project. I use round values to arrive at some of the budget figures that I can compute based on experience. For example: in the 4 bathrooms in the house I will need- 3 sinks ($100), 4 toilets ($250), 5 faucets ($150), 3 bath tubs ($750), 3 tub spouts ($100), and 4 showers trims ($500). In the kitchen I will need a faucet ($1000) and a sink ($400). So, I plug in $8,000 for “22400 Plumbing Fixtures”, even though I haven’t chosen the fixtures, it gives me a guideline. Later, when you’re online for hours shopping late at night for sinks, it will give you a benchmark to control costs. Another example: Appliances – this is a high-end home, so I know I will use a Wolf range, and Sub-zero refrigerator appliances package. This typically runs about $30,000, so I plug in this amount. I do this exercise, while I await for the contractors to give me bid numbers on the remaining scope.

After the contractors have been to the site, and I have discussed the scope of work with them, I collect their prices and put into my spreadsheet. The CSI codes help fill gaps, and ensure you are not forgetting anything. After the exercise is complete, you have a construction figure to use in your over all Pro-Forma for the deal (see previous post Project Analysis). Important: I always add at least a 15% contingency for any unforeseen things that can come-up in construction. Now, you are getting a clearer picture if the project will be profitable, and whether you want to move forward and sign-off contingencies (meaning you will lose your deposit).

In the case of the Belle Meade Mid-century Project, the construction budget is parallel to my estimate, so the deal still makes sense! I feel I have covered all my bases, and allocated enough money for surprises. Having “hard bids” (contractor offers written Estimate for scope), reassures me that I am not missing any huge portion of the budget. For these reasons, I have signed off contingencies this week! So, I know what I am in for…

Development Takeaway: Ensure you are accounting for all aspects of the construction budget, and then some, because there are many unforeseen situations that can arise in a remodel that add to the cost. Get your contractors involved early so you are ready to go when the deal closes, and you aren’t losing time (that is costing you interest $$$) bidding out.

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