Conceptual Design - First Development
First Big Problem
When we received the conceptual design layouts, we knew we had a problem. They were all 4,500 SF or greater. If you remember from a previous post, our initial financial model had us developing a 3,200 SF home at $200.00/SF. The smallest conceptual design was 1,300 SF greater than our model. At $200.00/SF, this would be an increase in cost of $260,000. This was a major problem!
The main issue was that all the homes on this lake were built on fairly steep slopes, necessitating a basement. The basement adds quite a bit of square footage to the house. Essentially it’s another floor. We thought we could build a smaller house based on the rooms we wanted and the sizes they needed to be. We didn’t consider the actual layout when putting together our initial financial model. Our design choices were dictating this increase in square footage. Lesson learned - Don’t approach your financial model casually. It is the entire basis of your investment. We should have done more research on the design constraints and had a more accurate model.
We wanted the master suite to be on the main floor. We also wanted the utility room on the main floor. Then, the look we wanted dictated tall roofs. With space for a second floor, it only made sense to put bedrooms up there. These requirements drove the size of the floorplan, which in turn drove the size of the basement.
Most of the increase in square footage was in the basement. The layout we liked the best had one bedroom suite in the basement, the mechanical space, a storage space with outside access for lake toys and a large recreation room that made up the rest of the basement. We could cut down the basement, but the basement is actually the cheaper square footage. The concrete basement walls are backfilled with soil and don’t require siding. The finishes in the store rooms and mechanical spaces are essentially non-existent. If we cut basement square footage, we won’t be cutting the expensive spaces.
We reviewed the floor plan we liked the best and optimized some parts with the thought that we could get the building down to about 4,300 SF of heated space. We turned loose the architect to clean up this floor plan and show us some conceptual drawings of the exterior based on this floorplan.
Increase the Size of the Real Estate Investment?
Now we had a hard choice to make. Either go to the bank for additional funding and develop a bigger place or scrap everything and trim our ambitions. Either go for broke with a really high end place or trim this building way back to match our current funding. What were the buyers looking for? How much risk were we willing to take? Would the bank even lend us the additional money? It was time to put together a more detailed model based on what we knew to date and make some decisions.
Nice writing. You are on my RSS reader now so I can read more from you down the road.
Allen Taylor
Allen,
Appreciate the comment. I’ve got some interesting stories to tell that I’m sure will teach people a thing or two about real estate. Glad people are finding this site.
[…] our previous post on this development you will recall that we just found out we couldn’t build the building we wanted and keep it […]
[…] In a previous post, we discussed how all of the conceptual floor plans were around 4,500 SF, which greatly exceeded our initial financial model which was based upon 3,200 SF of heated space. We had made some changes to various room sizes and layouts and had sent the architect back to clean up the drawings and present a final floor plan. We were hoping it would be around 4,300 SF. The path forward was to then price this revised plan, re-run our financial model and make a decision on how to proceed with this real estate investment. Build a much larger building and try to sell it even though it would be one of the most expensive homes sold or scrap the plans and start over with much smaller expectations. […]