Budgeting is a key part of building a development, whether you are putting up a home for your family to live in or creating a large residential complex to rent out. Determining hard costs and soft costs when it comes to construction is important when figuring out how much money you need, and how much you might make on the other side.
addy believes in real estate for everyone, making investing as easy and accessible as possible. We’ll take a look at why construction costs are important, the difference between hard and soft costs and why you don’t need to worry about them when addy is involved.
Construction cost importance
Simply, budgeting accurately can be the difference between turning a profit and making a losing bet. While there can be money to be made in real estate, it also requires time, energy and some knowledge to make the best investments on your own.
When it comes to investing in real estate online, not every platform is created equal. Some require more knowledge on behalf of the investor while others, like addy, break down barriers to real estate to make it available to the average Canadian.
What are hard costs in construction?
Basically, hard costs are those expenses directly related to construction. They fall into two main categories: physical materials and labor. Physical materials include cement, wood, brick and steel and other basic building blocks, while labor involves the expenses related to those actually involved in the construction of the building.
Hard costs are also often referred to as ‘brick-and-mortar” costs.
These two main categories can be further organized in order to paint the most accurate picture of expenses. Materials aren’t just structural, but those needed in order to finish a project, like potential furnishings or cosmetic upgrades. Labor involves costs that go to a contractor as well as those that go to a subcontractor. They may include carpentry and landscaping, as well as tools and equipment needed to perform such duties.
You can break down hard costs even further. For example, under “landscaping,” you may have grass, fertilizer, bricks, seeds and more.
Hard costs aren’t consistent across all regions, but instead tend to fluctuate greatly. Both materials and cost of labor will see varied prices depending on the location. Still, relative to soft costs, hard costs are fairly easy to identify and document since they are tangible. That means hard costs tend to be simple to predict and budget for.
What are soft costs in construction?
Conversely, indirect costs related to construction are known as soft costs. Some soft costs include fees, permits, inspections and surveys. These are harder to recognize than hard costs because they aren’t necessarily readily apparent when you envision construction. Their prices may fluctuate more greatly too, especially since some may not arise until well into the future.
Soft costs frequently pop up before physical construction takes place, as engineers and architects may need to map out a plan and workshop ideas. Inspections and tests may need to be done to the site in order to see if the proposed plan is viable. Before constructions can begin, developers may need to file for a permit from the city as well.
Soft costs also include legal and administrative fees.
However, soft costs often continue to pop up after construction is completed as well. That’s because they include building and property maintenance, which may deal with managing tenants, providing security or ongoing monthly costs, like insurance.
Crowdfunding with addy
addy’s team of experts searches the country for worthy investments and conducts thorough due diligence before presenting an investment opportunity to members. Each property drop comes with a detailed Offering Memorandum as well as additional information to help addy members make the best decision possible.
addy also allows members to invest as little as $1, but members don’t need to worry about extra fees or any involvement in a property. The General Partner takes care of all the construction, renovations or maintenance that is needed so addy members can just await a potential distribution. It’s that easy to start making passive income.