Minor Setbacks…
Left hook from the economy. Right cross from the banks. Multiple uppercuts from the mortgage industry. A 10-round knockout.
For those of you who’ve been following along, it’s been a real treat sharing this process over the last year and a half. As of today, I’m officially abandoning the live/work project. putting things on hold while I look at all options. The climate is wrong, the banks aren’t willing to meet us halfway, and the entire process is…well, just exhausting. I could go on and on about things I’d do differently, frustrations with the industry, or the unrealistic expectation the city has for the ADU program.
But for now, I won’t. Instead, I’ll just say thanks to those who deserve it.
August 21st, 2008 at 12:02 pm
Greetings!
Thank you for the great work in documenting your work. It has been very interesting to read your about your adventures in building, bureaucracy, and finance. While this particular project is on hold, I hope that you guys have not given up on the overall idea of constructing an ADU and I also hope that in the future the economy will improve so that you can get the project realized!
By the way, since you have stopped, maybe it is worthwhile to reconsider the plans and what exactly you want to build. Maybe simpler materials, cutting down on everything possible, and coming up with a structure cheaper than what you had in mind, would still make sense? As I am sure you know, http://www.100khouse.com seems to be a good place where to look for ideas on how to decrease costs for a project.
Just an idea. Again, keep up the good work and hang in there!
Best wishes!
J.
August 21st, 2008 at 1:39 pm
Thanks Janis.
I’ve really enjoyed the 100k house blog site, and admire what Chad is trying to do. Our challenges are similar, but I must say there are certain aspects of developing this project that are unique. For example:
- We have to use sprinklers in the unit because it is set so far back from the street. As a result, you have a higher bill not only for the sprinkler install, but also for the Service Development Charges from the city (Portland has some of the highest SDCs in the country)
- Since we’re on the topic of SDCs, our permits and SDCs will run over $10,000. This is a fixed cost that can’t be adjusted.
We did look hard at the “build a shell” model - in other words, cut back on everything and build the “bare bones.” This option is still on the table, but it’s tough to cut back on costs without having a corresponding cut in appraised value. If we could afford to self-fund the project, I would have definitely gone this route. But, because the bank is involved, cutting bigger corners means less value which means lower loans….which means we can’t fund the construction. It’s a little vicious circle.
I hope some day to be able to pick up the pieces of this project and make it happen. Ironically, I was just quoted in Oregon Business Magazine about the benefits of live/work building. Oh sweet irony!
August 24th, 2008 at 11:13 pm
Shawn,
Ultimately a real disappointing end to a very inspiring concept. As a caveat to others who are thinking about going down this road, how much money did you have to spend to learn that you didn’t have enough money?
August 24th, 2008 at 11:23 pm
Hi Kevin,
Well, that’s not an easy question to answer - if you count city fees, architectural services, engineering ad so forth, then the number is well over $10k.
However, if you want to limit it to wasted appraisals and other bank-specific costs, I would say the number is under $2000. This doesn’t factor in my time spent with various banks, mortgage brokers, and appraisers. This number would be really discouraging if I were to calculate it. The financial services industry repeatedly disappoints when it comes to responsiveness, ethics, and reliability.
I think there’s a lot for others to learn from this experience. The financial piece is a huge component of the project, and it’s really difficult to know which direction is will go until you’re in the thick of it. Unless you’re independently wealthy, it’s a big gamble. I had nearly 50% of the project cost in cash, and the bank was still unwilling to play ball.
August 24th, 2008 at 11:50 pm
If a city really is interested in ADU infill, they should at least discount all the fees, and refund them once the project is built!
August 25th, 2008 at 8:41 am
You won’t get any argument with me there! The truth is, if the city took a hard look at their infill efforts, they’d see that they are failing. I took a look at the number of permits issued for ADUs, and it’s very telling - each year there are fewer and fewer permits issues, many of them canceled.
The reason for this is quite simple - the fees and associated costs aren’t in alignment with the benefit to the homeowner. And, with home values dropping, homeowners no longer have the equity they had before to finance the projects. Going for a traditional construction loan is difficult at best (the banks don’t “get” ADUs) and the cost to borrow money is high. Once you start to pencil it out, it just doesn’t make sense.
Some years back the city did an analysis of the AU program and determined that adoption rates were indeed sub-par. One of the options for increasing adoption was to lower fees, or offer some sort of grant program. Unfortunately, no one (to my knowledge) has followed up on this issue.