Paperwork

I spent the day updating my Construction Loan paperwork, organizing and filing subcontractor bids and generally getting on top of the paperwork. Here is an interesting thing about construction loans that I did not know. To get the loan, you break the work down into categories and get bids for the major ones. Once the bank is satisfied they approve your loan, assuming everything else is in order(finances, appraisal, etc). Now here is the interesting part. You get the money for each category once that work is fully completed only. So for example, let's say kitchen cabinets are a category worth $20k. You can only get that money once they are installed in the project. The bank will come out and verify. I guess this stops people not completing the necessary work, switching out stuff just to get the money etc. It does put you in the interesting position of owing the cabinet maker their money and not being able to pay until the cabinets are installed, which might not have anything to do with them.

Another thing that I was reminded of whilst doing paperwork is the variations in bids from different contractors. I have a few trades/categories where one contractor's bid is twice as much as another contractor! Now in theory they are bidding the same work as they had the same information etc. So what is the deal? My opinion is that you should always get a few bids to compare. The high is most likely too high and the low is too low. The high bidder is perhaps busy, doens't want to travel that far or whatever and is throwing a high number at the work. If they get it they will feel good making the $, otherwise no loss. The low bidder might be desperate for work, not paying attention to the scope of work, or bidding low figuring they will add $ through change orders once they have the job. My point here is the dollars does not tell the whole story. Get multiple bids, get references/referals, review the bid carefully to see what is included and not. Remember you will be working with this contractor for awhile so a good relationship is extremely valuable. Plus you will be living with their work even longer!!

TYPICAL LOAN CATEGORIES

(Not the best list, just an example)

1. Plans, Permits, Arch Fees

2. Bonds, Insurance

3. Excavation, Backfill, Final Grading

4. Foundation

5. Framing, Sheathing

6. Roofing

7. Siding

8. Windows, Sash

9. Brickwork

10. Sheet Metal Work

11. Ext/Int Painting

12. Plumbing & Fixtures

13. Water

14. Sewer

15. Electrical

16. Insulation

17. Heating, Cooling

18. Int Walls/Drywall

19. Doors, Trim, Finish

20. Garage Materials

21. Cabinets

22. Vinyl, Tile Work

23. Appliances

24. Underlayment

25. Flooring

26. Porches, Patios

27. Driveway

28. Landscaping

29. Misc Extras

30. Cleanup

31. Sales Tax

32. Financing

33. Real Estate Commisions

34. Profit & Overhead

35. Lot/Property

If you are looking for a more complete list just let me know. I have worked up some fairly good Excel tools that I am currently using to track my Cash Draws on the loan and manage the overall project costs.