Why renovation projects can be a danger to your wallet…
There are a number of shows on television which made the renovation process look ideal for the first time homebuyer or for the startup small business. In the idealistic world, the potential buyer is brought to a number of buildings and they see that it needs a “little work” to get it up to being a multi-million-dollar property. Of course, the purchaser picks the property which has the largest square footage and then an hour later, the contractor hands them the keys to a fantastic new business. And while this television world would be great to have, it is idealistic and fantasy. In most cases the renovation of a building is a financial black hole waiting to happen. Here is why.
Re-building Construction loans are difficult to obtain
Construction loans involve a time consuming process. And while they are tedious, they are obtainable and quite common amongst banks. However, the re-building construction loan tends to be less desirable for banks and so the person seeking to upgrade the business or residence is left jumping through hoops to try to get the finances to get the work underway. Banks typically do not like re-building loans as they:
- Require that special inspections take place
- Do not provide the same long term mortgage that a construction project does
- Does not account for the unforeseen costs
- Has a higher risk of loss from the investor to the bank
Modular buildings are under a whole different permit and loaning standards than the “traditional” house, business, or construction loan. This makes the loans far easier to obtain if you have your documentation in order.
What is behind or under that wall?
I find it a bit frustrating when I see a re-construction show as to how they portray the unseen. The best way in which to describe this would be a person picking the mystery prize behind a closed door. They find a problem but don’t worry there is a contractor that will magically fix the problem. In truth the problems one can find in a re-construction problem are very serious. Some examples include:
- Toxicity in the soil which would require special removal and re-testing
- Asbestos in the walls which requires a specialized team to remove
- Black mold which requires a complete shutdown of production and special removal
- Poor wiring which could result in gutting the property and re-wiring the entire building
- Outdated plumbing which could result in the need to redo the whole house as well as dig up the external lines to meet code
- Faults in the foundation which could result in the need to jack up the property and fix the foundation or (worst case scenario) condemn the property
- Finding out that a wall which is supposed to be removed is a supporting wall and cannot be resulting in the need to have new blueprints drawn up, certified, and approved.
These are just a few of the issues which can come up once a person gets into a renovation project. As you can see, the costs of some of these fixes would be excessive. It is a huge risk to take even if you have had a full inspection of the property. The inspector cannot take apart the walls to look for those hidden issues which can come up. In other words, you are taking a gamble which has very high risks of financial losses.
Why use modular building as an alternative?
For less than it would cost you to build a new business on-site, and for far less than a renovation project, a person can have a new business constructed via modular construction. The process is highly regulated with high standards. You do not have to worry about the electrical, plumbing, and such being faulty because those which install such must be licensed and the building must pass inspection. Additionally, using a modular building allows for the purchaser of a parcel to relocate the physical location of the building on that parcel if needed. For example: If the initial inspection says that it is fine to build on the front end of the property and later is comes up that there are old lines on the property which could influence the integrity of the foundation, on a traditional construction you would either have to remove the lines or start over. However, with modular construction you could simply move the building back to the backend of the property where no lines are present and avoid the additional costs.
In addition to the financial benefits, the diversity of layouts and the functionality of the modular buildings has seen quite an increase in recent years. From school buildings to hospitals, the modular building is quickly becoming a standard in construction. Even multi story buildings are being constructed via modular building. Cheaper, safer, and quicker to build, what is not to like?