How To Reduce Construction Cost

The Real Estate Espresso Podcast

How To Reduce Construction Cost

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How To Reduce Construction Cost

Welcome to the Real Estate ~~Especial~~ 📝Espresso Podcast, your morning shot of what’s new in the world of real estate investing. I’m your host, Victor Menasce.

On today’s show, we’re talking about what your time is worth. Is it worth your time to look for savings in a construction project, or should you just accept that things are going to cost more?

On one of our projects, we’ve been going through a value engineering exercise. This is where you look closely at the design specifications and the bids from subcontractors and find ways to save money in the project without compromising the end product. Or in some cases, you may choose to compromise the end product. But that’s a decision.

You can sometimes, in fact often, face escalating costs because of the assumptions being made in the project. Our team has been meeting twice a week and sometimes three times a week to pull cost out of this one particular project. I’m going to show you a few ways in which we are saving money on a large scale. What I’m going to share with you are real life examples from one of our development projects.

Let’s start with a flat roof. Naturally, a flat roof should never truly be flat. It’s going to collect water and snow and eventually fail. You want enough of a slope that the water will drain. The parapet that surrounds the roof should be level and create the illusion of a truly flat roof, but the roof itself should not be flat.

The roofing subcontractor proposed purchasing Styrofoam wedges that would sit above the roof deck but underneath the roof membrane in order to create the required slope. This is one solution, but it added almost $400,000 to the cost of the roof so that the roof would drain.

There’s more than one way to create a slope. The wood trusses supporting the roof are manufactured in an engineered truss manufacturing facility. It’s not going to cost extra to design these roof trusses to include the required drainage slope, and just like that—BOOM—we saved $400,000 in the cost of the roof. Asking the right questions brought the opportunity to the surface.

In another case, the plumbing ~~subconscious~~ 📝subcontractor had assumed a more expensive pipe for all of the drain pipes. It turns out that if ABS pipes will meet the regulatory requirement, then the drain pipe can drop in price by more than 50% compared with XFR pipes. Here’s another simple case of making sure the requirements are well understood so you can save money without compromising the living experience for the building residents.

In yet one more case, we managed to save $100,000 in the apartment entry locks simply by changing from a programmable lockset at nearly $1,000 a piece to a programmable deadbolt lock with a conventional ~~mortice~~ 📝mortise. Again, there’s no real loss of functionality or user experience. Residents can still unlock the door with a fob or with an app on their smartphone. The doors can be integrated into the building’s electronic entry system. There’s no real loss of functionality—we’re just buying a less expensive lock.

Windows are another area where we can save a lot of money. Windows come with tons of options. The design aesthetic often calls for a black window frame in many buildings—in fact, a lot of buildings today have black windows—so much so that anything else other than black appears novel and fresh.

The usual rule of thumb is that colored window frames cost anywhere from 15%–25% extra—although quotes we received, in fact, show a much larger price premium for anything other than white. All of a sudden, our team fell in love with white. The ~~coloured~~ 📝colored frames were not worth the additional $300,000 to the project. White frames are not going to look cheap. They’re going to be lovely windows, and the architectural statement can be made other ways apart from black window frames.

Here’~~s~~ 📝s another one. We looked at specifications for the elevators. Our building has three elevators. All of them were specified to have a 3,500 lb lifting capacity. So the obvious question is, what is driving the need for such a large capacity elevator?

You might want to ensure that residents moving in and out have the ability to complete the move with a minimum number of trips. Some trips in the elevator are limited by volume, and others are limited by weight. For example, think of a mattress and box spring. They are not very heavy, but they take a lot of volume. Boxes filled with books in ~~China~~ 📝china cabinet, those can be heavy, and if you fill an elevator with boxes, you might run into the weight capacity.

But then, why do all of the elevators need to be 3,500 pound capacity? Maybe we could reduce two of them to 2,500 pound capacity and just keep one at 3,500 pounds. There are some substantial savings there.

Examining the finishes of the elevators can drive costs. Stainless steel is the hardest and most durable finish, but there’s other solutions that could be lower cost. Maybe only the high-capacity elevator that would be used for moving should be stainless steel. The others could still have a very attractive but less expensive finish where physical damage is much less likely to occur.

These are all examples of ways in which we can reduce the cost of a project without compromising the living experience of the ~~residence~~ 📝residents. And by the way, this was all done in under an hour. We saved close to a million dollars in the budget for the project in an hour. I happen to think that’s a pretty good hourly rate, or pretty good productivity for one hour’s worth of work.

And let me point out, this was all achieved without arm twisting the subcontractors. ~~one~~ 📝We’re not negotiating the subs down in price, although that may come later. Right now, this is strictly focusing on the scope of work.

As you think about that, and have an awesome rest of your day, go make some great things happen, and we’ll talk to you again tomorrow.

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