One of the considerations for new housing projects large and small…large tract housing projects or single-family spec houses…is that construction loan interest becomes larger at the tail-end of the project.
Construction loan interest costs…which are fixed monthly expenses…which must be paid to avoid a loan going into default…are calculated on the total amount of funds that have been disbursed through the loan…and are therefore a growing unpaid balance until the property is sold and loan balance paid off.
At the beginning of the construction the disbursements out of the construction loan are relatively small compared to the total loan amount…and thus the interest costs are also relatively small.
But the vigilant management of time and the sense of urgency in prosecuting the work should never let-up from start to finish…because time gets more expensive as the construction progresses and disbursements accumulate.
This is one reason why constructability analysis based upon recorded past lessons learned is a proactive investment in preventing construction problems that cause delays in time. Unanticipated design and construction problems that arise throughout the course of the actual construction…that cause work stoppages…and that dovetail with other adverse events like bad weather or materials procurement problems…should be analyzed in terms of their loan interest costs at the tail-end of the project…or the current costs to accelerate the work to catch up on the schedule.
Paying two or three months of loan interest costs at the end of the project for a high-end luxury house that has a loan balance of several million dollars outstanding because the structural plans had problems requiring re-design and resubmittal to the city/county for plan check…resulting in a work stoppage 14 months ago during the concrete and structural steel phase of the project…translates into the most expensive loan interests costs because they are calculate on a near fully disbursed construction loan.
The same concept applies to tract housing, custom homes, and apartment projects. Time is money…whether in construction loan interest or lost rental income…when projects are completed late.
The point of this post is to suggest that the value of preventive constructability analysis upfront…can be viewed in hindsight as huge when looking back on the costs of a project that finished late.
The value of mistake prevention looking forward at the start of a new project is difficult to calculate…how can the avoidance of a future potential problem that was eliminated ahead-of-time…that did not occur…be evaluated in terms of dollars.
The idea that diligence and urgency is an approach that should be applied uniformly and universally throughout the duration of a housing construction project from start to finish…is a concept that is reinforced by the accelerating accumulation of loan interest costs as the work progresses.