Things to Note Before Settling for a Cheap Log Cabin Kit

Many people have a great desire of building a cabin, but they lack the patience to build from the ground. Many people want to enjoy convenience by simply approaching a manufacturer and then getting the kit. After the arrival of the kit, then it is all about piecing it together or getting a contractor to do it for you.

Regardless of what method you use, a kit will need you to use a lot of effort so as to come up with the best structure. There are so many kits available today and many people may find themselves going for the ones that have very low price tags. When you choose a lower price, there is a danger that exists. However, it is still important to note that cheap isn’t always necessarily a bad thing.

Log cabins are the energy efficient band they allow us to be much closer to nature. They are versatile and very attractive too. This is a great option for anyone without any building experience.

Cheap options

If you want a cheap option, then it is possible. It all starts with the kit. You should first compare the cost of the kits. Usually, they come in different completion stages and every kit has its own price. There is the shell only, the dry-in package, and the turnkey package.

The shell only comes with the logs package and the log wall system. The dry kit is where there is a shell and the exterior finish while the turnkey includes the shell only, the fixtures, fittings, and a dry-in package.

The stage of completion will determine the amount of money that you end up paying and the kind of work you will have to do yourself.

Shell only: this costs less because it only comes with the logs for the constructions. This can be called the log wall system. This includes the beams and the timbers that are necessary for the construction of the shell. This kind of option involves getting your own doors, windows, floor, and roof as well as the interior and exterior finishes. This is a good choice, especially when you are quite perceptive with other materials. If you do not take time to research well or when you are not sure where to buy other things, this option can prove expensive in the end.

Dry-in package: this is an amazing choice for those who want to keep it cheap. This is an option that includes a shell, and the exterior finishing that is needed to complete the build. This option usually includes the roof, the floors, windows, and doors. They are not in the shell only package. This is an option that can keep the costs low when you complete the interiors by yourself.

Turnkey package: this is the cost of building from the shell, to the exteriors, and to the interiors. This one will offer you all you need to finish the home. This is more expensive.

Usually, a lot of costs are not included, but you should inquire about the same.

Getting a Construction Loan Vs A Mortgage Loan – Learn the Differences

Unless you plan to pay cash for your home building project, you will need to obtain financing for the construction and a mortgage for the outstanding balance when it’s finished. While you may have qualified for a mortgage loan before, getting a construction loan for your home building project can be a little challenging. 

Although it’s certainly possible to get a construction loan as an owner-builder, lenders may shy away from you at first, thinking that you aren’t qualified to handle such an undertaking. Consequently, it’s important to be very prepared and to show yourself in a capable, competent light when presenting your case to the lender. For example, don’t say, “I’ve never really done this before, but I’m willing to give it a stab.” Instead, be positive, prepared and professional. Never lie, but anticipate questions and concerns and have answers ready.

There are several types of construction loans to choose from, but one of the most popular for people building their own home is a construction loan that converts to a permanent loan once the home is complete.  Although there are no standard specifications for this type loan, as a guideline, most only require that you pay closing costs once. That saves some money and makes the process easier.  You don’t have to go through the qualification process twice.   The downside is that it is next to impossible to lock-in a permanent mortgage rate, since you won’t be closing the loan for six months to one year.

No matter what type construction loan you choose, you will likely be required to pay monthly interest on the construction loan amount during the construction phase. The amount you owe each month will depend on the amount you have “drawn” out of the loan, not the overall amount that you are allowed to borrow. If you are approved for a construction loan of $100,000 but you have only drawn $50,000 then your interest payment will based on $50,000. Typically construction loans are standard interest (not amortized) and are one or two percent over the prime rate, or whatever you have negotiated with your lender. 

Qualifying for a construction goes beyond the income and credit qualification requirements for a standard mortgage loan.  Bankers or lenders will want to know how you plan to tackle your project and that you are capable of building a home yourself. A thorough presentation to the bank will be in order. The following is an outline of what you will need to apply for a construction loan:

  • all the same financial information you would provide to get a standard mortgage loan (financial statements, income verification, credit report, etc.)
  • a set of your plans (they may ask for several copies)
  • detailed specifications (the materials and finishes you plan to use)
  • an estimate of the cost
  • an appraisal (ordered by the lending institution.  The appraiser will use the plans, specifications and lot value to determine the amount)
  • your lot information (whether you own it, etc.)
  • contractor bids (not necessarily required, but might be if this is your first project)

You might also consider providing any other documentation you can think of that will help indicate your ability and preparedness to complete your project. The bank is essentially becomes a silent partner in your project and will be concerned about the home being properly built.  Demonstrating your ability to handle the project is key here.

Calculus Applications in Real Estate Development

Calculus has many real world uses and applications in the physical sciences, computer science, economics, business, and medicine. I will briefly touch upon some of these uses and applications in the real estate industry.

Let’s start by using some examples of calculus in speculative real estate development (i.e.: new home construction). Logically, a new home builder wants to turn a profit after the completion of each home in a new home community. This builder will also need to be able to maintain (hopefully) a positive cash flow during the construction process of each home, or each phase of home development. There are many factors that go into calculating a profit. For example, we already know the formula for profit is: P = R – C, which is, the profit (P) is equal to the revenue (R) minus the cost (C). Although this primary formula is very simple, there are many variables that can factor in to this formula. For example, under cost (C), there are many different variables of cost, such as the cost of building materials, costs of labor, holding costs of real estate before purchase, utility costs, and insurance premium costs during the construction phase. These are a few of the many costs to factor in to the above mentioned formula. Under revenue (R), one could include variables such as the base selling price of the home, additional upgrades or add-ons to the home (security system, surround sound system, granite countertops, etc). Just plugging in all of these different variables in and of itself can be a daunting task. However, this becomes further complicated if the rate of change is not linear, requiring us to adjust our calculations because the rate of change of one or all of these variables is in the shape of a curve (i.e.: exponential rate of change)? This is one area where calculus comes into play.

Let’s say, last month we sold 50 homes with an average selling price of $500,000. Not taking other factors into consideration, our revenue (R) is price ($500,000) times x (50 homes sold) which equal $25,000,000. Let’s consider that the total cost to build all 50 homes was $23,500,000; therefore the profit (P) is 25,000,000 – $23,500,000 which equals $1,500,000. Now, knowing these figures, your boss has asked you to maximize profits for following month. How do you do this? What price can you set?

As a simple example of this, let’s first calculate the marginal profit in terms of x of building a home in a new residential community. We know that revenue (R) is equal to the demand equation (p) times the units sold (x). We write the equation as

R = px.

Suppose we have determined that the demand equation for selling a home in this community is

p = $1,000,000 – x/10.

At $1,000,000 you know you will not sell any homes. Now, the cost equation (C) is

$300,000 + $18,000x ($175,000 in fixed materials costs and $10,000 per house sold + $125,000 in fixed labor costs and $8,000 per house).

From this we can calculate the marginal profit in terms of x (units sold), then use the marginal profit to calculate the price we should charge to maximize profits. So, the revenue is

R = px = ($1,000,000 – x/10) * (x) = $1,000,000xx^2/10.

Therefore, the profit is

P = R – C = ($1,000,000xx^2/10) – ($300,000 + $18,000x) = 982,000x – (x^2/10) – $300,000.

From this we can calculate the marginal profit by taking the derivative of the profit

dP/dx = 982,000 – (x/5)

To calculate the maximum profit, we set the marginal profit equal to zero and solve

982,000 – (x/5) = 0

x = 4910000.

We plug x back into the demand function and get the following:

p = $1,000,000 – (4910000)/10 = $509,000.

So, the price we should set to gain the maximum profit for each house we sell should be $509,000. The following month you sell 50 more homes with the new pricing structure, and net a profit increase of $450,000 from the previous month. Great job!

Now, for the next month your boss asks you, the community developer, to find a way to cut costs on home construction. From before you know that the cost equation (C) was:

$300,000 + $18,000x ($175,000 in fixed materials costs and $10,000 per house sold + $125,000 in fixed labor costs and $8,000 per house).

After, shrewd negotiations with your building suppliers, you were able to reduce the fixed materials costs down to $150,000 and $9,000 per house, and lower your labor costs to $110,000 and $7,000 per house. As a result your cost equation (C) has changed to

C = $260,000 + $16,000x.

Because of these changes, you will need to recalculate the base profit

P = R – C = ($1,000,000xx^2/10) – ($260,000 + $16,000x) = 984,000x – (x^2/10) – $260,000.

From this we can calculate the new marginal profit by taking the derivative of the new profit calculated

dP/dx = 984,000 – (x/5).

To calculate the maximum profit, we set the marginal profit equal to zero and solve

984,000 – (x/5) = 0

x = 4920000.

We plug x back into the demand function and get the following:

p = $1,000,000 – (4920000)/10 = $508,000.

So, the price we should set to gain the new maximum profit for each house we sell should be $508,000. Now, even though we lower the selling price from $509,000 to $508,000, and we still sell 50 units like the previous two months, our profit has still increased because we cut costs to the tune of $140,000. We can find this out by calculating the difference between the first P = R – C and the second P = R – C which contains the new cost equation.

1st P = R – C = ($1,000,000xx^2/10) – ($300,000 + $18,000x) = 982,000x – (x^2/10) – $300,000 = 48,799,750

2nd P = R – C = ($1,000,000xx^2/10) – ($260,000 + $16,000x) = 984,000x – (x^2/10) – $260,000 = 48,939,750

Taking the second profit minus the first profit, you can see a difference (increase) of $140,000 in profit. So, by cutting costs on home construction, you are able to make the company even more profitable.

Let’s recap. By simply applying the demand function, marginal profit, and maximum profit from calculus, and nothing else, you were able to help your company increase its monthly profit from the ABC Home Community project by hundreds of thousands of dollars. By a little negotiation with your building suppliers and labor leaders, you were able to lower your costs, and by a simple readjustment of the cost equation (C), you could quickly see that by cutting costs, you increased profits yet again, even after adjusting your maximum profit by lowering your selling price by $1,000 per unit. This is an example of the wonder of calculus when applied to real world problems.