Building Up or Out

It’s common knowledge that most developers break even and even lose money on there first ‘flip’. Knowing this however, does not make experiencing financial blows and a shrinking profit margin any easier. Here are a few things we wish we had been aware of in order to keep our profit margin wider - things that will surely factor into our next project. 

Maintain the footprint:

As new ‘developers’, we assumed that the smartest and cheapest course of action would be to maintain as much of the existing floor-plan as possible. We cautiously kept as many existing walls as possible, leaving the formal living room and the two bedrooms basically ‘as is’. We pushed the kitchen and family room to the back of the house, building out a completely new structure, rather than building up. We were initially told that a single-story home was much easier and cheaper to build. A second story would pose a tremendous headache as the old structure wasn’t built to hold up a second story - new footings, bearing beams and the works would have to put into place. We were better off just building an entirely new house in that case. So, smugly we built out rather than up. 

Sadly however, it was not as simple as one might expect. By building out, we now needed to pour an entirely new foundation with new pads for the extension of the house. We needed to frame the new extension onto the existing one - something our framer explained as being akin to trying to puzzle new pieces onto crooked, broken ones. Essentially, the cost and even process of the new framing was the same as it would have been to frame a second level. And many of our existing footings still needed to be reinforced to support new shear walls that would stand up to 2017 building codes. If we had gone up, we would have simply reinforced existing pads (as we now have done), and perhaps added a few additional footings around the perimeter of the existing footprint to accommodate the added load of a second story, end of story. 

Building out rather than up resulted in a few different issues. Not only was our precious backyard made significantly smaller, but increasing the square footage of the house on the single story building meant a larger roof which meant more rain runoff and, thanks to new legislation from 2012, costly storm water mitigation measures. While the purpose of this law is to mitigate the harmful impacts of runoff and stormwater pollution, for developers its a costly expense. In our case, it added more than $8,000 to our budget for new permeable pavers for our driveways and planter boxes designed to soak up anything running off the roof. Had we decided to build up, the surface area of the roof would have been unchanged, meaning that entire cost could have been foregone.  The lesson here: if you can, maintain the existing footprint. 

The second major issue we had thanks to this build out was with our detached garage. In the city of Los Angeles, if the garage is detached, it must be set back at least ten feet away from the house. This placed a serious constraint on us as our detached garage was awkwardly built in the middle of our property. We decided to push the garage to the very back of the property line, a rather drastic move with an even more drastic price-tag. Not only did this add square footage to the storm mitigation requirements (even though it technically was no bigger than the previous garage, the fact that it was new construction meant there was no way around it ), but it entailed a completely separate construction project. Our contractor explained that we were essentially building a new house in its own right: it needed its own demolition permit, its own building permit and a separate foundation and framing job- adding at least $20,000 to our budget. Perhaps this would have been worth it had we decided to build a recreational room over it- not only does this lend your property the “cool factor”, but it offers the buyer a potential revenue stream to offset mortgage costs. Unfortunately we missed the boat on that this time, but, our mistakes can be your win. Going along with the above advice of maintaining the existing footprint, do NOT move the garage unless you absolutely need to, and if you do, make sure you make an awesome rec room above it. 

You’re welcome.