Construction Loans (Part 2): My Experience

In the past six months, I’ve said the words “construction loan” more than I ever imagined I’d have to over my lifetime. My previous blog posts have gone from explaining that I decided to forego applying for a construction loan, to deciding to try the construction loan option again, to waiting for a construction loan, then circling back to the initial comments about not getting a construction loan. However, with all this talk of construction loans, I realize that I haven’t given much detail on exactly why it ended up not working for me. Once again, this isn't an opportunity to bash building loans as an option, but rather to give insight on a specific circumstance where it didn't work out and the knock-on effects of taking that risk when building.


I also mentioned in previous posts that in order to fund my building without a loan, I have several streams of income. One of those main streams is seasonal, meaning that I have times where money is rolling in and others where it’s completely dried up. Right now is one of the latter. So while building is paused again as I wait for more money to come in (and, for the sake of full transparency, for me to catch some Christmas deals on home goods), I figured this was a good time to publish a post that I wrote while I was still in building limbo.


You’ll notice that unlike my usual posts, it’s pretty depressing. While I don’t want to discourage readers from the process, I do also think transparency is important to show how hard the process can really be and what a toll it can take. So, below is a glimpse into my thoughts from September 2021.


 

In a previous Building Blog post, I mentioned that I had set a rather ambitious goal of my building being inhabitable before my birthday. Well, I’m 24 as of August 2021, and some of you may be curious to know whether or not I met my goal. I mean, I was so close to being done with building, right? Well the answer is… (drumroll, please)...


No. I absolutely did not. In fact, not a single piece of work has been done since before my birthday. But it’s not for a lack of trying.


I mentioned in my previous blog posts that I was beginning to exhaust my savings, so I reverted to my original plan of applying for a construction loan. That process began at the end of May, and as of the end of September I’ve barely made headway.


Part of the reason I started building out of pocket in the first place wasn’t because I just love seeing every dollar that comes into my bank account go right back out, but because loan applications are notoriously stressful and overwhelming. On top of that, there’s a chance that after astronomical levels of stress, the loan may not even be approved. Long, long, long story short: I’m now back at square one.


In my case, it’s also extremely overwhelming gathering these quotes considering that construction costs now are three times higher than they were when I started my buying journey in late 2019. Full transparency here: construction costs have skyrocketed so high that I no longer qualify for a loan at the current market price to finish building, in contrast to my previous qualification at the market price it would’ve been to build both units back in 2019. Safe to say, I’m feeling pretty stuck from all angles.


I've felt in over my head more times than I can count; I frequently ask what I’ve gotten myself into. It’s not just a huge financial strain and responsibility on yourself but you’re also responsible for putting food on the table for all the workers involved as well as having a responsibility to your new community to not have an eyesore bringing down the aesthetic for a long period of time. As I’ve quickly realized, it isn’t fair to start and stop a job trying to piece funds together and jeopardizing their income in the process. Of course there can be huge returns in construction, but it doesn't come without risk. In my case, a big risk was the risk of ending up having to self-finance.


I know that I’m in a privileged position to be able to undertake a project like this at my age and I’m constantly thanking God that I’m able to work with my dad as my contractor, who’s showing a level of patience with me that would’ve been exhausted before the project even started with any other contractor. In reality, he probably knew from the first time I brought it up that there was no way I’d be able to afford to get the whole building done without periodically stopping and restarting, but didn’t want to discourage me before giving me a chance. My goal with these posts is to prepare others who may be interested but may not have a similar safety net of having a personal relationship with their contractor.


With that said, if I had to redo this knowing what I know now, I definitely would’ve waited to gather up a larger amount of savings before trying to dive straight in. In my last post I suggested maybe five or six months’ worth of wages and materials might be sufficient enough to comfortably get off the ground, and allow you to save more during those months as well keep the project going afterwards. In fact when it comes to starting to build my second unit, that’s exactly what I plan to do: wait. I wouldn’t say it’s impossible, but it's definitely more manageable with realistic advice to ensure you’re prepared before embarking on a project with such huge responsibilities.


 

As you would’ve seen from my last few posts, I’m in a much better place now. But it’s important to take time to reflect on how far you’ve come to have motivation to believe that you can go even further. As I keep stressing as well, this also shows the importance of being flexible enough to adjust your plans as circumstances change. If I had gotten discouraged and given up from the time that I hit my first brick wall instead of knocking it down and starting over (pun intended), I wouldn’t have even gotten far enough to buy the land in the first place.


I hope you’ll stay tuned for my next post-Christmas post which will hopefully be a lot more exciting and progressive, as I plan to start bathroom and kitchen fixtures!

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