Tuesday, November 13, 2007

I have been a bad blogger. I neglected my lovely page here, though, to be fair, there was not much to report. Then there was something to report, but i was mired in temporary shock, then depression, anger, disbelief, acceptance...whatever those seven stages of grieving are supposed to be.




The source of my happy fun mood: The constructions bids came in.



Let me back up.




Way back in 2006, when this project evolved from a dream to a reality, I laid out my total possible budget for building. I reached this amount through researching building prices, researching home sales prices in Nosara, particularly in Section EE, and looking very very hard at my financial situation. I discussed this with my fearless financial advisor [Actually, he has a lot of fear, which is why I work with him. My own fear circuits are largely inactive, except when math is involved. But I digress. In the end, I estimated that I could afford 100k to build, with the understanding that a 5-10% budget variance was possible.




When I contacted architects, and held my interviews, I used the number of 85k for discussions. That was the number under which I held my discussion with DatumZero, and which I have used as my basis for saving for this project for the last many months. In fact, I refinanced my house, a decision based on the deteriorating US housing market and a 5 year ARM more than anything else, but paid to open an equity line. I did this because Guillermo and team had overcome a functional hurdle to the overall disposition of the property which included a radical variation from the original plan. The tower. At this point, I was awaiting bids, and expecting numbers in the 120k range.



Imagine my surprise when all three bids came in at 300k.




No, don't imagine it, see what that looks like:



Guillermo sent me a document with these bids and a lengthy discourse about the ramifications. he led in true Douglas Adams fashion with this message: Do Not Panic. But I panicked.
300k? Are you joking me? That number hardly even reflects the original number. I mean, what am I dealing with...the Bush administration?
A calmer reading of the D0 document showed thoughtful reductions in building to help lower costs. This included not paving the drive, removing the entry work, reducing the depth and the length of the gallery, and terraces. Still, even Guillermo's best back of a napkin alterations could only get us to 217k.
I want to be clear. I dont hold Guillermo or D0 at fault here. The pathetic dollar, the increase in labor costs and a raging commodities market are all at least at play. still, I cannot go forward with these numbers. Guillermo told me that he had a meeting with one of the contractors last week, reviewing options to decrease the cost. I followed up with Ari, to find our walking away point in this project. Its a dream, I dont want it to become a nightmare.
I have done some additional research to discover what value I could create in my home. I estimate that number at 490, based on a similar house in EE for sale. They also have a view of the water, a similar size plot, 3 beds, 2 bath, and an awkward property orientiation that requires elevation for a view. At that amount, minus the likely value of the naked land, building a home for 300k would reduce the value of my property. Even if it comes out even, I dont want to lock up every available piece of capital I have, with no return on it until I can rent it in 9 months or so, in one investement. I cannot do it. Its too much. We need to get to 120 or less to make this work.
Feedback, and condolensces are welcome.

3 Comments:

Anonymous Anonymous said...

You certainly have my condolences. I am reading this blog with interest as I am currently still designing my own home for a property I own in the Central Valley. I have met with two engineers and also communicated with others. I am told to count on spending $85 per square foot for my area. This amount is up considerably from last year when I began investigations.

I also mortgaged my home last year when values were high. I took some of the money and put it into the Costa Rica property, The rest I invested in stocks...small caps mostly. It has been a roller coaster ride for me but am ahead at about 21% gross earnings at this moment. The Costa Rica portion of my investment I can only guess at.

I won't be ready to build for another two years. I am figuring on a budget of $125k for a home under 1400 sq feet but that is at today's prices. In two years, it may be 30% more...who knows?

Best wishes. Building on the coast is another ball game, I hear.

12:44 PM  
Blogger warnerk said...

Thanks Anon,

When I budgeted for this project, I spoke to contractors, architects and home owners in CR, and they all, as of about a year ago, said that 55-65 per square foot was the amount it cost to build. 65 for top end. Its gotten crazy down there. This should cool off the real estate market considerably.

2:47 PM  
Blogger DuhMan said...

Ouch, I feel for you big time, very painful. This was one of my biggest fears for the both of us: the unknown cost of construction and the unknown quality. I had heard $85/sqft for high end, but that is sounding way low based on your numbers. It is possible the definition of high-end was "not pressure treated", but I really got the impression it decent, including teak floors and good appliances, etc. The colon is at 517/dollar, not much change in a couple years as I can remember. Yes the global boom has raised commodities, but still. Yes, lots of construction in Guanacaste, but still. I think this world boom will be difficult to sustain and we should see relief from China after Olympics. When the yen carry trade turns as in inevitably will, commodities will plummet as hedge funds and big investors have to sell their leveraged commodity positions and buy back yen. And most of all, as the US housing market and economy continue to slow, that should take some pressure off. Don't give up, save your bucks, keep dreaming. Equity loans may be as cheap or cheaper a year from now. It won't make you feel any better, but I don't even have electricity or water to start with.

(I am surprised that Guillermo, who has an office in CR, was so unaware of the likely cost).

Pete.

11:14 PM  

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