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Design-build fees?

Apr 4 '14 16 Last Comment
greenlander1
Apr 4, 14 10:11 pm

What  is the going rate for design-build work for a renovation to a single family house with the following?  

Services provided would include:

During acquisitions period, due diligence and cost estimation of renovation (something that could be a major issue if the house is a fixer)

Financing arrangement of both the acquisition and renovations

Permitting and approvals

Architectural services 

Construction management via an in house general contractor

 

The idea is that a client looking for a house that might need improvements or expansion would get a one-stop shop for everything needed to make it a turn key product.

 

Olaf Design Ninja_
Apr 4, 14 11:14 pm

since its a house its equivalent to a GC fee for standard detached family dwelling construction.  check your regions typical GC fees and match that.

chigurh
Apr 5, 14 7:39 pm

if you have to ask you are probably going to loose your ass.

Miles JaffeMiles Jaffe
Apr 5, 14 10:35 pm

+++ chigurh loose your ass

chigurh
Apr 6, 14 12:43 am

ha, typo, but still applicable 

wurdan freo
Apr 6, 14 2:07 pm

no doubt. Ass will be loose.  

Greenlander.  What do you think the going rate is? The services you offer seem very vague and you need to be project specific, which means each project could have a different fee. Lots of threads on here about pricing.  

HeneryNadela25
Apr 25, 14 7:42 am

You should contact with any Contractor Who have a good experience in the Infinity Construction & Design. Because they have good knowledge in this fields .......

curtkram
Apr 25, 14 9:07 am

did you really just post a stock photo of a guy in a suit with a yellow hard hat?  yellow?  is that what the people at infinity construction do?  run around construction sites with suits and yellow hard hats?

i think you need to post a picture of that guy's shoes.

from your brief introduction, i can't help but think the people at infinity construction and design are horrible people that might possibly be cannibals.  also, i suspect you could be a bot.

 

 

also, 'loos you ass' if you believe ornament is crime....

wurdan freo
Apr 25, 14 11:15 am

Ha! Ornament is crime. Curtram - i don't agree with most everything you say, but that was funny!

That photo is hilarious and stolen... see the watermark in the middle. 

What is that dude looking at? The plans are in his hands. The building is behind him. Whiskey Tango Foxtrot. Nice tie!  Dude looks like he's from eastern europe. Maybe he's the construction company sales guy. They're they only ones who dress like that. That would explain why he's not looking at the plans.  He doesn't know what they mean... And that plan??? definitely not 24x36.. Looks like one sheet too. Must be a hell of a draftsman. 

I also vote for the shoes. Lets see the shoes! Yellow hard hat...

grneggandsam
Apr 25, 14 11:20 am

I think it depends on how much you can get away with.  Show them a bunch of numbers to justify it, and add on 15% contingencies, then 15% O/P.  You could end up with 30-50% profit if you do a lot of the labor yourself.

grneggandsam
Apr 25, 14 11:28 am

Look at that brazen stare, while looking the wrong direction apparently wondering about what his wife will have ready for him for dinner tonight.

wurdan freo
Apr 25, 14 11:36 am

4-6% for strictly management. Not to say you can't try to get more. If you're self performing work, which the op doesn't appear to do, then you can get up into 10-20-30-40%. 

Ask any contractor how much does he charge and he will tell you, "As much as I can get."

grneggandsam
Apr 25, 14 11:54 am

I work in design-build and have done cost estimates.  You have to account for inevitable professional downtime, which means you bill higher than 4-6%, at least for wealthy clients in DC... That might not all go to "profit" though.

greenlander1
May 27, 14 6:38 pm

I know a guy who does very high end design-build work and acts as GC and charges 15-20%.  I have been on the development side more recently where the fee structure is totally different so I am pretty out of the loop for what architects charge these days.  We did all the aforementioned work in-house, sometimes acting as GC, but with RE prices in Southern California getting very heated, we are considering switching to a fee-based model in lieu of acting as an investor.

Wurdan, the 4-6% you mention is just a margin on top of your costs of production, i.e. CD's, overhead, etc?

I'll poke around the threads regarding pricing but any comments appreciated.

wurdan freo
May 28, 14 1:29 am

4-6% is just for managing the construction. Budget, Subcontractors, materials, sequencing. It has nothing to do with design costs. It really isn't that much for the work you will be doing. You almost have to be self performing some work in order to make the project worth it. That being said, it all depends on the market you are after. High end, there is going to be more details, more amenities, more risk, more cost.  That's really where a "white collar" GC or CM can make a living.

Mid to low end you are competing with a typical home builder, who already is doing a form of design build. Usually they have a draftsman on staff or have a relationship with a draftsman or architect who generates the designs for them and are capable of self performing alot if not all of the work. 4-6% is also based in Wisconsin for this type of work. Your market is going to be different. At the end of the day the percentages don't matter. What matters is if you are happy with the fee you are getting for the risk you are taking and the time you're spending.

I've been working on a proforma for a single family home. This is just a rough outline.

2000 sf

$125/SF

 = $250,000 construction costs

Plus land $100,000

Plus landscaping $25,000

Hard Costs = $325,000

Desired return = 30% = 97,500

Total = $422,500

Sales Expenses = 12% = $50,700

Sales Price = $473,200

List Price = $525,000? or $250,000 depending on your market.

 

Now these are very rough numbers and the devil is in the details. Maybe I'd be ok with 15%, but lots of risk. Also... I'm having a tough time finding a lot for $100,000. They are closer to $200,000 in the areas that can handle that list price. So in theory this would be more than design build. This would be develop and design build... but that's what it would take for me. It is near impossible in my market to build a $200,000 house and make any money on it. Parts of Texas you can do it all day long. 

The financing that you mention could be another avenue for revenue. Are you simply passing the client to a broker or are you lending via hard money? Going rates for hard money are 4-6 points with 12-16% interest only usually for 6-12 months. If your clients are wealthy they probably have access to their own financing. If not, then there is additional risk that when the home is completed and the client goes to close on a traditional mortgage, the appraisal will not match the agreed upon price. Again... this depends on your market. 

In my experience... significant cashflows in construction come from volume and scale. Unless you are tackling the high end market where you can do more boutiquey type of work. A couple of years ago when I was still working for a high end gc. Their fee was 0-2%.  $67,000,000 project and their fee was $1,340,000. Nothing to sneeze at, but not much reward for an awful lot of risk. 

greenlander1
May 28, 14 2:02 pm

4-6% for managing construction as a GC?  or architect?  So you are hiring all the subs and liable for construction?

Yeh we are finding it difficult to find things that pencil.  We have 20% IRR as a min targeted return but now land is extremely expensive.  Seeing hillside stuff on market selling for what flat stuff would sell for 2 years ago.  Hence the idea of moving into a more fee-based structure because the equity risk is getting too high.  

The financing we would help arrange through a few banks we know who are getting back into the home improvement game.  The acquisition and improvement costs would be fully financed at a good rate.  The improvement costs would come at a higher rate than the typical 30 yr mortgage though.  Either way, way cheaper than hard money.  I am not a fan of that unless you are tearing through projects doing quick paint and carpet jobs.  It's too expensive.

There is a pre-appraisal that happens prior to construction that the bank will refer to to underwrite the loan.  

The process is a lot of paperwork and process as the bank views the greatest risk after the borrowers' credit is the GC's work and resolution of the bid.  So there's a decent amount of stuff that needs to be verified for the bank to sign off on the project and the GC.

greenlander1
May 28, 14 2:04 pm

I def agree about the scale issue with construction.  I am out here in LA and things still seem pretty competitive in terms of pricing for design or design/build even though the RE market has rebounded a huge amount.

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