There are two purposes for creating this plan:
- It will clarify things for you
- It will convince others – including your financiers – that you know what you are doing
Your project plan should cover the following key points:
- State the objectives of the scheme, including your profit targets, the timeframe for building and selling, your costs, and your target sale price.
- State the project approach – in other words, how you are making sure your project goes ahead smoothly. This will address whether you are having the project managed for you entirely, or taking a different approach, the options for which we will discuss now.
Managing your project – all, nothing, or something in between?
At one extreme you can build a home by paying a professional such as an architect or surveyor to manage the whole package for you.
This could include completing design, specifications, plans, planning approval, and project management. Your role could conceivably be reduced to signing on the dotted line and agreeing or not agreeing to what is being asked of you.
At the other extreme, you could do the whole thing yourself, brick by brick.
Most people opt for something in between.
Look realistically at the savings you can make from DIY vs. using a pro, and calculate what they amount to:
- If you owe £60,000 at 10%, the cost of your capital is £6,000 per year. This is about £500 per month.
- If it takes you a full extra month to plaster a kitchen yourself at a saving of £800, then your real saving is £300
- In the same time you could have made twice this much delivering pizza!
Key Tip: In practice, there is never a totally hassle-free approach to project management. At some point, someone out there will be inclined to let you down, whether it’s an architect or a plumber. They don’t do it on purpose, by the way! It’s called a conflict of objectives.
Managing a self-build
There are three typical approaches to managing a self-build:
- Hands off, where a third party manages the whole project
- You manage the project, and hire a building firm to design and build, or you hire separate designers, builders and sub-contract tradespeople
- You DIY. Everything.
Really, the difference is in the degree of integration. If you integrate the scheme by bring together a number of parties to do the work, you become heavily involved and save money in the process.
That’s because you are taking away the integration function from someone else like an architect or a general builder.
Remember as well that fragmenting a job tends to move the burden of risk to you, the integrator. It is much simpler to transfer accountability for the total job to one firm than it is to many smaller ones.
Generally, the more confident and knowledgeable you are, the more you can integrate others (and do a good job). If on the other hand you are not in the above camp then consider integrating through some other means, such as employing a project manager.
Which method is for you?
Overall, there are three main things to consider when making your decision on approach.
- The cost involved in the time taken to complete the project
- The cost of employing extra support
- The cost of lost opportunities to you if you are unable to pursue any other projects
So our DIY approach could pan out like this…
Build cost + support costs = 180k
Cost of capital = 20k
Whereas our managed approach could be…
Build cost + support costs = 210K
Cost of capital =10k (quicker delivery)
Revenue from other ventures =15k
The third category is the income you make elsewhere because you where not fully tied to this one project.
Generally, if you can make more doing something else and you are confident your project will succeed at arm’s length, then go for it!
Key Tip: Self-manage if you are confident and want to maximise profit. Let others manage if you want to reduce risk.