Real Estate Investing Adventures

Real Estate Development Tasks

Once we received our commitment letter from the bank, we had three major tasks to accomplish. We ran these tasks in parallel. They were:

• Choosing our architect
• Choosing our contractor
• Picking our building lot

This post addresses how we chose our architect. Investigating all the architects currently working in the lake development we had targeted revealed that the average price for a set of house plans along with the construction inspections and support was running around $50,000. One “name” architect was getting $100,000! Typical architectural fees run 6% to 8% of the cost of construction. At a total home building cost of $640,000 as listed in our initial financial model, we expected design fees of $38,400 to $51,200. We obviously wanted to hire someone at the lower end of the range who could still produce the quality level we needed.

Choosing Our Architect

So how would you choose an architect? Would you chose the “name” architect and pay a premium of more than $50,000 with the hope that you could make up that cost in the sale? Is the marketing power of using a “name” architect worth the increase in costs? On the other end of the spectrum, would you just purchase a set of lake house plans and forego hiring an architect. You can purchase a set of plans off the internet for about $2,000.

It’s a tough decision. When making these types of decisions, you should always have a rational methodology. Here was our process. We first listed what we were trying to accomplish:

1. Mountain Lodge Style
2. High End Materials Throughout
3. Very Specific Open Floor Plan Layout
4. Ability to Obtain Marketing Materials for Potential Pre-Sale
5. Support During Construction
6. Reasonable Cost

This obviously eliminated the “name” architect and the internet plan options. We then started looking around for a real good “middle of the road” architect. My partner is a sales and marketing type. He talks to everyone. Through word of mouth he found out about an architect that had just broken away from a “name” design house. Appears he was one of the guys in the back room actually doing most of the work. We immediately arranged an interview.

The architect brought along samples of his portfolio, which were just what we were looking for. More importantly, he seemed like a good guy that would be easy to work with. Through our discussions, we found out that he was just starting out and had a couple of smaller projects in house already. In our discussions, we explained to him the advantages of doing this project:

1. It was a fairly large, and extremely high-end project. Just the type he needed for his new company portfolio.
2. It was in an exclusive development that he wanted to break into and would lead to more work for him.
3. We understood design and construction, knew what we wanted and there wouldn’t be a lot of changes or indecision.
4. Finally, we were well funded and paid quickly.

We told him we would love to work with him on this project, but the price needed to be right. We asked him to submit a proposal on costs and services. He had a proposal back to us in two days. It was for $32,000. This was great news. It was below our target. We went back to him and offered $30,000 and asked him to put $2,500 at risk. If the house pre-sold prior to construction completion, we would pay him $35,000. If it didn’t, he would forfeit his $2,500 and we would only pay him $27,500. In addition to the normal services, we also wanted him to provide a color rendering and some other marketing materials. He accepted and we had ourselves an architect. Lesson learned - Never accept the first offer. There is always room to negotiate.

Our interest “carry costs” were going to be substantial and we wanted everyone to be motivated to help us sell this development. See below for the color rendering the architect produced of the lake house we had designed. My next post will discuss how we picked our building lot.