A Value Driven Approach
There are many aspects to building an affordable home. The most obvious is just simply the initial cost. The initial cost is going to be the most obvious factor in the monthly mortgage payments and is the most easily evaluated, but what are some of the other considerations? Let’s look at Location, Design, Execution, Operation, and Resale.
- As real estate agents say, “Location, location, location.” This aspect is going to determine the value of the home and any future improvements. A good location will improve the initial value of the home, the cost-effectiveness of future improvements, and will determine many other aspects in the livability and long term return on investment (ROI). A higher initial cost for the location can be quickly recouped by the effects it will have on subsequent investments. A poor location will reduce the value of all initial and future expenditures. It can also affect transportation costs, school quality, and insurance costs. The most important effect of a location will be on the eventual equity or resale value.
- Design. Construction cost per square foot, maintenance, resale value, and operating costs will be very strongly influenced by design. The trend today is towards ostentatiousness instead of good design. In particular home designs that have lots of exterior corners and exaggerated elevations have an adverse effect. They cost more in every aspect of initial construction and will cost more to operate and maintain. Good design that will retain value involves simplicity and aesthetic choices derived from dividing simple masses into usable areas rather than joining lots of little spaces into a building plan. The initial design is not the place to save costs, but higher design costs don’t ensure good design.
- Execution. “The devil is in the details” is a motto to live by during construction. There are hundreds of decisions to make during the construction of a house. They will affect how well a home looks, feels, it’s operating and maintenance costs, and even how much cleaning it will require. A common mistake is to expect the builder to make all the right decisions. Another is to expect the building inspector to catch any mistakes. Diligence and legwork by the owners are essential. Independent third party inspection should be considered, such as required by LEED (Leadership in Energy and Environmental Design) Certification. New Mexico has a unique Sustainable Building Tax Credit that will offset the costs of certification, and meeting the requirements of this tax credit will help ensure air quality, energy efficiency, durability, and other criteria. Certification should also increase resale value. Other tax incentives to consider include Solar Tax Credits and Solar Sales Tax Exemption.
- Operation will have recurring costs that should be considered as one of the most important criteria. An obvious example is energy costs. The amount of home mortgage payments will usually be fixed for a long period while energy costs have risen 4-5% annually for the last 40 years. What was initially considered a reasonable energy cost will increase over the long term while expenditures are in after tax dollars without any return. In contrast, initial expenditures for energy efficiency will appreciate when energy costs go up and also with the increase in building costs and share the tax advantages of a mortgage. There are energy efficient mortgages that essentially trade a higher initial cost for lower operating costs, allowing more equity to be retained.
- Resale should be the uppermost criterion in all home ownership decisions and will be determined by paying attention to all of the above.
Contact Sun & Earth Construction
.png){kind=icon}