New Construction Costs

March 5, 2015 · 15 comments

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We moved to Maryland just over a year ago, and spent a good portion of 2014 tearing down the house we bought and building our new personal residence. I know that a lot of my readers are interested in new construction, and many have even started looking at the numbers for building spec houses, so I thought I would provide the final budget breakdown for the build, just to give some additional data on new construction costs.

DISCLAIMER: Remember, costs will vary based on LOTS of things, including location, types of contractors, finishes, style of house, time of year, your experience and negotiating skill, etc. Don’t presume that my numbers below are an accurate reflection of what your numbers would be on a different house in a different location using different contractors.

Here are some details of the project, the takeaways and finally the full budget breakdown:

  • I did all the management (General Contracting) myself, so there was no overhead for a GC or builder. That would have likely added 15-25% to the cost.
  • The breakdown includes the demolition of an existing ranch house (including removal of a concrete basement) and building a new house that shares a portion of the old basement area. I’d say that the money we saved by already having a big hole in the ground (less dirt removal) and not having to do any yard clearing was pretty much offset by the cost of demolition of the existing house. So, the costs likely would have been comparable if we were just building on an undeveloped piece of land.
  • The new house is 3400 sf of finished space across three levels, 600 sf of unfinished space in the basement (storage and mechanicals), a large 600 sf garage, plus about 250 sf of rear porch and deck. Depending on how you add it up (finished vs unfinished) to determine average square footage costs, the square footage of the house is between 3400-4600 sf. For cost purposes, I prefer to count unfinished area as half the cost of finished area, so I estimate the square footage of this house — for cost purposes — to be about 4000 sf.
  • The finishes were all mid-grade and above, but my wife is a master of savvy/frugal shopping, which that allowed us to keep the costs well-below retail. This includes some higher-end light fixtures, granite in the kitchen and baths, all tile showers, hardwood throughout the main level, stainless appliances, etc. We did save on trim by using all MDF, hollow-core doors, etc.
  • For contractors, we used a number of larger, closer-to-retail contractors as we didn’t have our contractor network here. We negotiated hard, so we got some great prices, but if we were to do this project again next year, I have a feeling we would be able to get the labor prices down 10-20% more. On the bright side, management of these contractors was tremendously easy compared to the sub-contractors we typically use.
  • Here is the final budget breakdown, with a per-square-foot average at the bottom (based on estimated 4000 sf):

    Budget Breakdown

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15 responses to “New Construction Costs”

  1. Craig Morton says:

    Thank you.

  2. Jerry says:

    J, What is MDF? Did you use 6 panel hollow core doors? Your website is a great educational work in progress. Thanks..

  3. J Scott says:

    Hi Jerry,

    This is MDF:

    As for the doors, we used 5-panel doors…I like them much better than 6-panel…

  4. Michael says:

    So the million dollar question… what would it sell for if you were to list it? Say if it were truly a spec house, what would the gross profit margin be?

    Could you feasibly see buying land and building specs instead or in addition to fix and flip jobs?

  5. J Scott says:

    Hey Michael,

    We’ve been building spec houses for a couple years now…in fact, I wrote 150+ page eBook documenting our first spec project a couple years ago (it’s free if you sign up for my Newsletter). The margins on spec builds is much better than flips, but the projects tend to take a good bit longer due to design and permitting time. For this particular lot/build, we could have built and sold a spec house for about $150K profit had we decided not to live in it.

  6. Michael says:

    I actually got the eBook a while ago, but haven’t gotten a chance to read it. I have spent a lot more time with your other books. In particular Estimating Rehab Costs. Great work, and I love the intimate look at your jobs. I also like the site redesign. It makes it much easier to follow each job through to the finish.

  7. Priya Verma says:

    Thanks for sharing this information. I think it is better to buy an apartment or house rather than building it. Many real estate developers help us to choose the best living space according to our needs.

  8. helencrazer says:

    Managing the Construction cost efficiently is the critical thing for sure. Very good post, Thank you

  9. Jason says:

    I found your site from reading a good discussion on Bigger Pockets about average cost per square foot for gut rehabs. At the time, Mr. Scott you were located in metro Atlanta and the average cost was about $35/sq.ft. not including what a general contractor would cost since you had a paid manager on salary. The discussion is about 8 years old now and I was wondering what the current cost per square foot for average gut job now? I tried to find it on other posts but have not been able to.

  10. J Scott says:

    Jason – We’re doing very different types of projects these days than we were doing back then, so there’s really no apples-to-apples comparison. In addition, we’re doing more adding square footage than we are just rehabs, so the numbers tend to be very different. That said, we’re probably spending 15-20% more in labor costs (same in materials) than we were a few years ago.

  11. Jason says:

    Mr. Scott, thanks for the reply and congrats on the new house(almost 2 years old). You mentioned that you probably could have made 150k if you would have sold that new construction instead of living in it. Personally, trying to get my life back after being the victim of two head-on car crashes, I could really start building a foundation if I could do a spec house even with a profit of “just” 75k.
    Of course location is key, but what factors would you say are important to factor in order to be able to make a nice profit off new construction? Finding the right lot or house that could be raised, size of house compared to average to area, availability of new construction inventory, building in sub-division compared to a stand alone lot, etc.
    I appreciate this site and all the information given.

  12. J Scott says:

    Hi Jason,

    The best way to determine if an area is good for spec building is to compare the average per-square-foot costs to build to the average per-square-foot sales costs. So, for example, in my area, we can build for about $100/sf and we can sell for about $180/sf. That leaves $80/sf for all our purchase price + fixed costs + profits. Our fixed costs in this area are about $10/sf for new construction, and we look for about $20/sf in profit. Which leaves about $50/sf to purchase land or tear-down properties. It’s tough to find deals at that price around here, but we do occasionally (including our personal residence).

    That’s the short-hand way to do the math. Obviously, before buying anything, you would want a LOT more detailed analysis.

  13. Kevin says:

    Im currently living in Miami and very interested in building spec home in the northern part of Miami. I have about $200k in funds. Everybody suggest that I do rehab first but when I analyze are market spec home are selling faster and more value. What is your suggestion regarding doing rehab or spec home first?

    Great Books

  14. J Scott says:

    Hi Kevin,

    Unless you have some significant construction experience and/or have a builder who can guide you through the process of doing your first build, I would recommend against it. There are a lot of nuances to spec building, and if you don’t know what you’re doing, it’s easy to drag a schedule out, go over budget, make mistakes that are difficult to correct, etc. Not to mention lots of stress when you piss off inspectors, engineers and your contractors by not doing things in the right order, etc.

    I’m not saying it can’t be done, but if you try it, expect it take an extra 6-12 above what you plan and expect to add 20% to your budget to cover mistakes that you’ll likely make.

    Otherwise, do a few big rehabs first or find someone who has done some spec building (or custom building) to coach you through the process.

  15. Kevin says:

    Thanks for replying.
    You just gave me another option by considering to take a big rehab project. I’m someone who like to go all out and have a big tolerance for risk. I’m going to change my focus and start looking at badly distress property. Thanks again J Scott.

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