Constructive Conversations
Welcome to Constructive Conversations with co-hosts Zac Daniel of Victorian Finance and Luke Barksdale of Viz3Dspace. This podcast is designed to take the confusion out of new construction and give you the knowledge you need to confidently begin your homebuilding journey.
Each episode, we break down the process step by step including everything from financing and design to builder relationships, budgeting, and the real questions homeowners should be asking before they ever break ground. With perspectives from both the lending and design sides, we’ll equip you with practical insights, industry knowledge, and the confidence to make informed decisions.
Whether you’re buying your first home, building your dream home, or simply curious about how it all comes together, Constructive Conversations is your go-to guide for navigating the world of new construction.
Constructive Conversations
Episode 2: How much I should expect to spend?
We dive into the realities of construction costs and why Google's estimates rarely match what you'll actually pay for building or remodeling projects.
• Builder-grade new construction currently starts around $180-185 per square foot, with custom builds at $200+ per square foot
• Labor shortages in the trades have dramatically increased costs for plumbers, electricians, and HVAC work
• Material selections can quickly blow budgets when homeowners choose premium finishes without understanding cost implications
• For new homes, buying existing properties offers the most space for your money, while custom building is most expensive but provides exactly what you want
• Remodels fall in the middle cost-wise but require a 15-20% contingency fund for unexpected issues behind walls
• Barn dominiums can offer some savings on shell construction but aren't necessarily the budget solution many think
• Financing for barn dominiums has improved but appraisal challenges remain due to limited comparable sales
• Budget transparency is crucial—account for "soft costs" like permits, design fees, and site necessities
• Setting and communicating a firm budget ceiling helps maintain good relationships with your design and construction team
Get pre-approved and establish a realistic budget before starting your construction project.
Hey everybody, welcome back to Constructive Conversation. I'm Zach Daniel with.
Speaker 2:Victorian Finance and I'm Luke Barksdale with Viz 3D Space.
Speaker 1:So today, we're going to talk about everyone's favorite topic money. Specifically, how much can you expect to spend on remodelings, additions or new builds, and why is the number so much higher than what Google tells you?
Speaker 2:Yeah, man, so cost? That's a funny thing. I hear stuff all the time, in fact I see stuff all the time, even on Facebook, so everybody wants that. Hey, what's this going to cost me? Like right out the gate, and they're looking for that square footage number. It's a hard thing to pin down and it typically means something different to every builder you're talking to right. Um, what we're seeing right now for like just straight up new build, I would say for builder grade, material type stuff, you're probably around like a 180, 185 per square foot, up to like maybe a 200 and then 200 square foot and on for anything custom. So what would you consider, bill? What is builder grade?
Speaker 1:what is?
Speaker 2:that. So builder grade, I mean, uh, like you know, for market countertops, maybe some lower grade, uh, granite type stuff, box cabinets, not custom. Um, if you're building a house on a slab, maybe standing concrete instead of putting flooring, in Doing things to really cut costs, mdf trim instead of wood Stuff like that.
Speaker 1:Okay, so I get the same question all the time. I don't build houses, but people call me and they're like what's the interest rate? There's so many different variations and variables that go into what generates an interest rate for you. Whether it's your loan to value your credit score, the loan program that you're using. There's so many things that go into what interest rate is and that's breaks down to what the cost of the loan is for you. So I completely understand that and that's going to be the same in anything that you look at. So if you're building.
Speaker 1:I would imagine that that cost is going to be higher, depending on what it is you're looking for.
Speaker 2:Absolutely. The days of $100 per square foot are gone. Like you might be able to get there if you GC it yourself. So you're your own builder and you do a lot of the work yourself, like actual physical labor. You're building it, you might be able to squeeze that number, but outside of that, these guys are having to lock and key it for $150 a square foot. Ooh, that's just not going to happen, Not for a good quality build.
Speaker 1:So what is really the things that drive up the cost the most?
Speaker 2:so I mean, square footage is where your cost is. That everybody's. Oh, I'm gonna, you know, pick a cheaper tile and stuff and that'll help a little bit. But overall, if you're wanting to cut cost on a project, you need to look at eliminating square footage, whether it be heated or unheated. Yeah, yeah, footprints, everything. I guess some things that you know drive up costs right now that have got us in a more expensive state in this market.
Speaker 2:Labor shortages You're seeing plumbers and electricians are charging some of the most that they've ever charged. Same for HVAC guys, but it's because their skill's in high demand. There's not a whole lot of people reentering the market for that kind of stuff. I think I actually saw a stat not too long ago where it was saying, for every 10 people that leave the trades, there's only like three that reenter. So yeah, I mean it's like a crazy deficit, which it seems to be, that people are trying to fix that with some trade schools coming back online. But, um, I mean, if you're the only plumber around that, you can kind of name your price on demand yeah, that's right, that's right.
Speaker 2:So trades and skilled laborers uh up pretty high. Um material choices uh they're, you know materials, more expensive than it never has been. Um, some high grade stuff, you know and people don't know. Yeah, you get a builder, send y'all say, hey, go pick out your tile, and you're like, great, well, that's a tile I love, right there. We don't know that that's just blown your tile budget and you do that times maybe 10 or 15 line items on a house. Well, now you're way over budget on a home.
Speaker 1:Yeah, yeah, that makes sense. Yeah, so I guess you know what would be the cheaper option to look at. I mean, last episode we talked about the difference between like a renovation or a remodel or building from square one. What's the cheapest option?
Speaker 2:yeah, I guess the answer is probably different. Uh, for everybody to some degree. So I would say that you know if, if you're looking at just getting a new home, in general, buying a house like a already built home is probably the cheapest way to go. You know, most money for your or most space for your money. If you're looking at like new builds specifically, some of these track builders are probably where you need to look. They've got a lot of fixed costs. They can control their labor costs a little bit because they've got big crews. They're salaried. Maybe they bought a bunch of their stuff in bulk, so they're able to control the square footage cost a little bit better than a custom Remodels, I would say is kind of. Next, a lot of your structure is already there. The big thing with remodels is you just don't know what you're getting into until you get into it Until. With remodels is you just don't know what you're getting into until you get into it.
Speaker 1:Yeah.
Speaker 2:Until you open up that wall, you don't know what's there, and then so there's some hidden cost. So if you are doing a remodel, one thing I always recommend is having a pretty good contingency fund, like if you have a $100,000 budget.
Speaker 2:Have you another, like 15 or 20, set aside to just kind of maybe hedge your bets a little bit on a remodel and then new home construction, for a custom home is probably by and large one of the most expensive things that you could do, but the pros to a custom home is you're going to get exactly what you want.
Speaker 2:You're not settling. You know what the quality is. You can see that there are no questions, there's no hidden things, so there's a lot of peace of mind, there's a lot of comfort, and being able to design it the way you want and how you live is a big bonus as well.
Speaker 1:So you know it's always a hot topic. I know it's probably one of the most Google searches out there. I get asked questions about it. I know it's probably one of the most Googled searches out there. I get asked questions about it. I'm sure you get asked questions about it, so let's just let's dive into it. Yeah, do you think a barn dominium is cheaper than a custom home?
Speaker 2:Oh man, yeah, so the Reddit pages will blow up about this. So there's a there's a pretty dead even split between the two. There are people that come out there and they're like, hey, we built this barn, a minion, for $80 a square foot. Odds are, they did a lot of it themselves and and that's kind of how that that works. As far as the barn dominion goes, typically what you see is the shell of the structure can get erected as a kit and it's really fast. So you say you save time, which ultimately will save you some money, especially for financing, because it goes up really quick, but you're still framing out the inside, you're still paying for all those materials. Really, the places you save is the time, maybe, maybe, maybe some roofing material, um, and then, if you keep the concrete floor, you'll save some floor and cost right there, but nothing, just huge I mean, I guess I, I've personally never built a barn dominium.
Speaker 1:Uh, you know we've financed several, but you know what would you think the cost difference between utilities on something like that would be?
Speaker 2:Vastly depends on how they build it. Could be worse, could be better. There are some people that build barn dominiums and they focus on that eco-efficiency thing so they'll spray foam it. Right, that's going to get expensive. Yeah, it's very expensive to spray foam it, but it's got a good r value. You're going to keep your heat and cooling cost down and then, depending on kind of what unit and stuff you put in it so they can be efficient, they can be very efficient. Done, done, right, but that's about the same as a house, so there's really kind of a wash, I would think I wouldn't think there's just a massive difference.
Speaker 2:It really depends on what you're putting in it, right, I mean?
Speaker 1:I think if you can build a barn dominium for 80 square foot. It's getting thrown up very quickly and cheap.
Speaker 2:It's probably not going to be as efficient, as you know, compared to a house or a more efficient barn dominium right, but that could be the same said with a house, or even like a modular kit or something like that, like you can get it cheap, but you're also getting what you pay for there, yeah, and I would say right now we're in the pinterest age and it's it's a golden age because you can find some really cool ideas, but it's a downfall for a lot of builders too, because you got people coming with unrealistic expectations.
Speaker 2:So, hey, I saw this. I also saw this company that offers this kit. That's what I want to do. And then when they get looking at it, it's, hey, there's a hundred thousand dollars for the kit, but they don't understand what it all it doesn't include, right, and what it doesn't come with it. So, um, barnuminium is really like three, I think and you know I may be a little bit off on here because I'm not a barnum enum specialist by any means but there's like single tube aluminum frame which is like some of the smaller kits and then when you get a little bit bigger, there's like a double aluminum tube that has kind of like a web in between it for the frame, and those are simple, you know, rectangular structures.
Speaker 2:And then when you get to some of the bigger spans, that jumps up into what they call red iron. And uh, red iron is just, it's the most expensive, like it's super nice stuff, uh, but we've had to remodel a red iron before. Not cheap, man. You're cutting big old pieces of steel and stuff like that. Welding it's. It's a lot more invasive than people take into account yeah, I can definitely imagine.
Speaker 1:I mean if you don't do something like that, you, you're putting up the money for it hundred-percent.
Speaker 2:Yeah, how's the financing on barn dominiums? So?
Speaker 1:really. Fannie Mae and Freddie Mac have updated their guidelines believe it was the beginning of last year to address Barn Dominiums because they were becoming so popular, and before there was no real way to finance it.
Speaker 1:You know you'd have to get private money or a private investor to help finance it. So Fannie Mae and Freddie Mac actually accept Barn Dominiums as a sound, insurable structure to finance. The problem that I typically run into with them is comps. You know you have to look at the appraised value. Fannie Mae and Freddie Mac are very strict on you. Have to take the lower of either the sales price or the appraised value and that's how we know how much to lend for Sure. So you know If you meet with a builder you get high-end cost, the high-end steel that you were talking about, spray foam, I mean you can really run up a budget on that 100%.
Speaker 1:But if there is no comparables in the area that include a barn dominium, then your appraised value may be well under what the actual cost is. Yeah, so then you're stuck with having to be a sealant on that appraised value, even though your cost may be way over, and then you're coming to the table with that out of pocket of whatever the excess is. That's typically what I see in barn dominiums.
Speaker 2:Yeah, I think there's some misconceptions out there too about them. A barn dominium is very much a kit that you buy that a company comes and installs on a slab. A barn, like a house that's built to look like a barn, is not necessarily a barn dominium. It is aluminum or steel structure that has something framed up inside of it. That's what your barn dominium is going to be, and that's another good indicator is, if your lot's like that, you can consider a barn dominium.
Speaker 2:If it's like that, you're stick building on the slope stuff, because your crawl space, your basement and just barn dominiums don't flow like that.
Speaker 1:Oh yeah, that's really good. So a true barn dominium would be like a kit.
Speaker 2:Yep.
Speaker 1:Otherwise, if you have a builder, come in doing a stick build. Rather, they're using steel or wood, right, that's not necessarily classified as a barn dominium in that regard that's correct.
Speaker 2:That's correct. You got a lot of houses out there. The people with those stick build it, you know, framing it two by four wood floor structures, stuff like that and then put them on a crawl space and they may dress them up like a barn yeah it's not necessarily the same thing, so your comps would reflect more of like a traditional home at that point yeah, no, no, that makes complete sense.
Speaker 1:Yeah, well, you know, money is just always a topic. I mean it has to be. If you're looking to build a new home, you have to know what your budgets at. It's really great information, you said, I mean with setting what your budget is and then putting that 10 to 15 percent buffer on the back end of it. Rather, you're building something new or remodeling because, like you said, if you fall in love with some fixtures, you don't want to be at the top of your budget and you're building a new house and then you have to settle for something less because it doesn't fit to your budget. So, having that lead way in there, or if you're remodeling you just you don't know what's going to be behind that wall.
Speaker 2:Yeah, contingencies are key and you know, a lot of the times we run into is people go well, this is my budget for a house. It's, let's just say, half a million. It's five hundred thousand dollars to build my house and then they sit down with us to design it and they design it all the way to five hundred thousand dollar budget and then when the builder goes to build it right so they're they're not accounting for. Well, a big cost is their land cost. If you own your land, it's not a big deal, but land cost is a big deal you know, as part of your budget there's there's something like soft cost type things.
Speaker 2:So there's design fees. If you have some bigger spans, there might be some engineering fees involved in that permits, inspections, now, sometimes those are wrapped into a builder's cost. There's hey, I'm covering your permits and everything like that, yeah. But yeah, one of the things we talked to a builder down in Guntersville quite a bit and one of the things they always tell us is hey, you know, when I send out that invoice and that porta potty's on there, everybody throws a fit because they don't know they're getting charged for a toilet being put on site. But stuff like that dumpsters, toilets, absolutely.
Speaker 1:Those are real costs that the builder has to account for. They can either hide it in their builder's fee, or it sounds like they're being more transparent about it.
Speaker 2:Yeah, builder's risk insurance, stuff like that. Those are things that like if you don't know, if you never build, I mean, you just don't know, you don't take it into account, but just know that there needs to be a contingency and then expect some of these soft costs to roll in until you build. Don't be shocked by it, you know, yeah.
Speaker 1:So you know, I would say to everyone reach out to a lender, get pre-approved. I'll be happy to work with you on these kinds of things. Set your budget. You don't want to be at the top of your budget when you start a new construction. You want to allow for some of those costs. So work with a lender, get what your?
Speaker 1:budget is work with a lender. Get what your budget is, get pre-approved, expect the contingencies cost and set yourself up for success If you are starting out in a design at $400,000, but your budget is $300,000,. I mean you're going to be stressed the whole time.
Speaker 1:Absolutely Whether you approve for $400,000 or not. If you don't have those costs already in mind, then it's going to be a struggle. You're not going to be in a happy spot when you're building your home and this is supposed to be a happy investment for everyone. I mean, it is an investment, but you want to enjoy the process and enjoy your house 100%.
Speaker 2:I think one of the things we're trying to eliminate in the industry is just that I'll never build a house again mentality, and everybody goes through it and says I'll never do that again. The reason they'll never do it again is because they had a poor process in the first place. And if they'll set up these teams that we're talking about, if they'll look at the budget well beforehand, be honest about the budget too. Be honest with your contractor, be honest with your designer. Hey, my budget, my ceiling, is $400,000. I don't want to go over $400,000. Otherwise, that's just a no-go. I've talked to my lender. That's my monthly payment. I want to be at. Let's set that and operate within it, because otherwise people, they'll make recommendations. As a designer, I've done it. We've been sitting down and somebody will tell us hey, my budget's 400 000. I'm like, great, let's, let's design it and we design it up to that and they may go. Well, I want to do this and this and this. Like it's not in the budget we talked about.
Speaker 1:Oh, that's okay and we'll we'll do it, and then it's like what is your budget at that point?
Speaker 2:exactly what is your budget? So, really, having those hard stop points and knowing yourself as a client, that's gonna fix your stress during the process. You're gonna maintain good relationships with everybody that's working with you percent yeah, and then you know, like, what you can afford. So if you define the budget, you've picked a quality team and they're operating within that you know the product you're gonna get get is going to be good, yeah, yeah.
Speaker 1:Now, I completely agree and, as we talked about going into this series, we just want to give enough educational information for people wanting to build a home, remodel a home whatever they want to do, remodel them whatever they want to do, but just to ask the right questions and really know what the process is going to look like upfront, and that way they know what to expect going into the building process 100%. So you know, I would say, next episode we can dive a little bit deeper into. You know, do you hire the designer first? You hire a builder first? What do you do? You've already got your budget set. Now what's your next step?
Speaker 2:yep, that sounds good to me, man all right, well, thanks.
Speaker 1:Thanks for listening.
