78 Mariner – Dollars and Cents
Its been awhile since we’ve provided an update on our project in Allentown. That is basically because we’ve been very busy with the rehab!
Things are going well as we can finally see our vision come to life. The project gets more exciting as time goes on. This is mainly because you start doing more and more finish work as you near the end of the project life cycle. As opposed to working on the “rough structure” or “major systems” of the house, the finish work yields tangible results that you can see and touch. This finish work includes new hardwood floors, kitchen/bathroom tile, countertops, cabinets, fixtures, etc.
I’ll have plenty of pictures up in the coming days. However, before we get to that, I wanted to touch a bit on some things we’ve learned about managing a project budget.
As I’ve stated previously, there are three important factors to consider when managing a budget:
- Do your research and set a firm “Baseline”
- Track “Actuals” and resist the urge to adjust your Baseline budget
- Analyze the variance in your Baseline and use this information to make future budgets more accurate
We’ve learned a great deal about the various costs associated with a major residential rehab. One reason this was a great first project is that the rehab is extremely comprehensive. We have touched just about every aspect of a full rehab that you can imagine (with the exception of the new roof that came with the house!). This includes full exterior makeover, tearing out floors, destroying walls, adding rooms, changing the layout, re-routing plumbing and electric, new appliances, a brand new heating system, etc. The full range of improvements will serve as invaluable experience for future projects. It also allows us to gain insight into the various costs associated with major rehab activities.
With less than 2 weeks to go until the project is completely finished, we are within $200 of our baseline budget! On the surface, this may seem like a phenomenal feat for our first project; however, that would be extremely inaccurate. In realty, we’ve come under budget in several areas totaling a $3,980 surplus. We’ve also gone over budget in several areas totaling an overage of $4,127. This gives us a net variance of -$147. This means we severely under estimated in some areas…and severely over estimated in other areas. We were lucky that this all evened out quite nicely (we also have yet to touch our “Contingency Budget” of $1,700).
The bottom line is that we don’t really care how close we are on the budget. Of course we would like to limit expenses as much as possible. However, we understand that, more than anything else, this first rehab is a learning experience. The goal is to complete this end-to-end rehab, analyze our performance, and use what we’ve learned for future projects. The real work begins when start looking into the reasons why we went over/under budget. We then find ways of making our budget estimates more accurate. We are continuously working to decrease our degree of variance. This will allow us to take on more projects in the future because we will be more confident in our ability to accurately estimate improvement costs.
Below is a snapshot of our current project variance. Here are a few things to keep in mind:
- Total Surplus / Overage is the total of the “Actual” and the “Future”
- The future numbers are costs that haven’t hit our books yet, but we have a firm idea of how far over/under we will be
We’ll provide further updates as we finish up the project over the next couple of weeks. Thanks to everyone who has helped out. Please let us know if you want to come check out the property or if you know someone who might be interested in buying it!