Project Affordability

Now that you’ve determined your needs and requirements, identified the property that will suit your dream home and know the various estimated costs, you only need to summarise the total cost estimate and check the project affordability of your dream home, before you start spending any more money on it.

The items that need to be taken into consideration in calculating the Estimated Budget and Estimated Cost are indicated below and elaborated in the book Plan Your Dream Home.

Estimating your available budget

It is recommended that you, along with renowned bond experts take note of the criteria as laid down by the banks and your local credit regulator and determine your own level of affordability in terms of the loan amount that you can possibly qualify for. This loan amount that you qualify for plus the cash that you have available, can then be regarded as the estimated budget for the project.

The loan to value ratio offered by a bank will determine the minimum amount of cash that you will require to buy or build with. This ratio refers to the percentage of the value of the property, as valuated by the bank, that they are prepared to lend to you. The remaining portion is referred to as your cash contribution.

Summary of the estimated cost

The estimated cost is calculated by adding the costs of the various elements of the project as summarised in the project affordability check below.

Checking the project affordability

With your estimated budget in mind and knowing what the estimated cost of your building project is, it becomes quit easy to check your affordability as follows:

Total estimated budget, including:

• Qualifying loan amount as indicated by the bank
• Cash available for your home

Total estimated cost of your dream home, including:

(The table references refer to the calculations in Tables 3 to 8 in Plan Your Dream Home with which a total cost estimate of your dream home can be done quit easily.)

All roof covered areas (Table 3)
Open patio areas (Table 3)
Garden areas (Table 3)
Paved areas (Table 3)
Internal features and facilities (Table 4)
External features and facilities (Table 4)
Interior design services (Table 5)
Fixed interior decorating (Table 5)
Loose standing interior decorating (Table 5)
Land (Table 7)
Planning and preparation (Table 8)

Project affordability considerations

If the estimated cost is under your estimated budget for the project, you should be quite happy and decide whether you might want to up-scale – which I would not recommend as you have actually spent good time to determine what you require as your dream home. Unless you as a family revisited your needs, it means that any addition should theoretically be a waste.

However, if the estimated cost of your dream home is over your overall budget for the project, you should not loose faith, but plainly revisit your accommodation requirements and either:

• Scale it down by reducing area dimensions until it suits the budget, which again I will not recommend unless you feel it will not harm your dream; or
• Perhaps phase out external facilities that can be planned in and built later. This will not harm your dream as it can be achieved, even though at a later stage; or
• Phase the accommodation requirements, also pre-planning the later phases to be built in the future. This will also not harm your dream as it can be completed at a later stage.

Through this iterative process you will certainly reach a point where you can either:

• Build your dream home within budget; or
• Buy your dream home within budget; or
• Start building your dream home in pre-planned phases; or
• Buy a smaller home on land that suits your dream home requirements and of which the present home can be renovated or enlarged into your dream home in pre-planned phases.

Present home, leasing, storage & relocation

If applicable, part of the affordability check, must also be to consider the impact that the sale of your existing residence would have on the affordability of your new home and the timing that will be required to satisfy the provisions of the sales agreement of your residence.

Expected timeline

Having gone through the concept planning you should by now have a very good idea of all the inputs required for you to obtain your dream home, whether it means buying it or planning and building it. The inputs that are required for you to plan and finance your home, only just touching the construction at this stage, can be summarized as indicated in the course and the books Plan Your Dream Home and Program Your Project.

Although it is not required for the success of the project, it is recommended to invest in a good project time scheduling tool, as it will make your life much easier, especially during construction. The slides in the course indicate the summarized Gantt charts that were configured with such a tool. The first chart deals with building your dream home and the second with buying and renovating it.

Depending on the extent of renovations and additions, the construction program in the two charts can be quite similar.

It is interesting to note that in the above cases the planning and construction periods are very similar. This emphasizes the importance not to under estimate the planning aspects and to consider these very carefully, as it will make the difference between a successful or unsuccessful project.

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Accommodation requirements and costs

Considering your accommodation requirements, we need to sub-divide these into the different categories, ensuring that all the elements are covered. It is so often found that people only tend to concentrate on roof-covered areas and completely forget about the other important facilities.

I found that the accommodation requirement categories as stated below provide a very practical and holistic checklist.

The book Plan Your Dream Home has a very comprehensive calculation schedule covering every possibility regarding homes.

Roof-covered areas

The accommodation requirements regarding roof-covered areas are determined by first indicating the internal dimensions of each room and multiplying these to obtain the floor area of each of these spaces.

Then you need to add the entire roof covered floor areas and multiply the answer with say 1.23 to obtain the total area of the house (this calculation allows for the area of walls, passages and staircases).

Now you can calculate the estimated cost by multiplying your answer with the going building cost rate in your area.

The home loan divisions of banks normally provide a very good indication of the going building cost rates in your region. It is worthwhile trying their websites. You could also enquire with a bond expert for leads in this regard. These costs should include all construction costs regarding interior spaces, all-risk contractors’ insurance and other preliminaries, such as site establishment, etc.

Open patio areas

Open patio areas are also regarded as accommodation requirements. Add all the open patio areas that are finished in high quality floor coverings and calculate the estimated cost for these areas at around 15% of the going building cost rate in your area.

Garden areas

Although this might sound rather funny, a garden area is just as an accommodation requirement as any other part of your house, but is for some reason mostly not included, especially at this stage. Add all the garden areas and calculate the estimated cost for these. An indication of cost could be obtained from your local nursery or garden contractor.

We found that, depending on your garden requirements, this could normally be in the order of 4 to 10 percent of the building and land cost.

Paved areas

Add all the paved areas also allowing a provisional quantity for the driveway leading to the garages and calculate the estimated cost for these.

The allowance for the driveway can at this stage be estimated by multiplying the floor area of garages by 1,5.

Obtain an indication of the cost rate from your local paving contractor.

Special features and facilities

The special features and facilities are those items that are not normally considered being part of standard house construction. These features and facilities should be subdivided into internal and external facilities. Obtain an indication of costs from your local suppliers and specialist contractors regarding these extra facilities that you require.

Interior design and decorating

Even though it is probably the one item that could make or break the livability of your new home, interior design and decorating is very often forgotten during the planning of new homes, resulting that it cannot be afforded for some years to come and that building elements are not designed to accommodate certain interior ideas.

Make a generous financial allowance for interior design and decorating in your budgeted costs. This allowance will depend on the theme of your dream home, personal taste and the level to which existing furniture and equipment will be used.

In average you should allow in the order of 7,5% when starting from scratch and at least 4% when starting with a fair level of existing furniture, of the budgeted cost related to all roof-covered areas.

You should also distinguish between fixed and loose interior items. The fixed items can eventually be included as part of a building contract and be financed by the home loan, whereas loose interior items will normally require a different source of funding and are mostly provided after practical completion of a building contract.

A summary of the accommodation requirements costs will be included in Part 6 of the course.

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