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What is up, my Pro Design Builder family? I'm Sam, also known as the Pro Design Builder, bringing to you new bringing to you another uh training video. So today we're gonna be talking about an exciting topic, which is how to calculate hard and soft costs. Alright, so one of the ways that you put a package together for your development project is truly knowing and understanding the cost. So I felt like this training was gonna be very important for you to understand how to count the sticks and bricks and also how to calculate uh all of the ancillary costs with consulting and engineering and architecture and stuff like that. So uh I felt like this was vital, but uh for anybody that don't know, this group is specifically for real estate investors that are looking to make the leap into new development projects. Uh I'm Sam, I'm your guide. I've been through a number of hoops to get to where I'm trying to go, and uh, I'm just trying to help the next investor uh make the same jump without the hurdles that I had to face. So I'll tell you a little bit about me since uh there's new people to the group. Uh I've I'm a serial entrepreneur, and back in the day, my wife had gotten into med school, and one day she wrote me a letter and she said, Sam, I don't want to go. I don't foresee us having the family uh unit that we envision having. And and luckily for us, uh that was the right decision. At the time, I I was not happy. I am a power couple type of guy. I've in I was seeing this big vision of us doing and staying together, da da da. But family is at the heart of who I am. If you don't know much about me, uh I'm a foster dad, I'm an adoptive dad, I've adopted twins. Uh, I'm very active in my community when it comes to foster work. That's that's definitely uh my my life's work. So uh I invest my time there in family. So if she was gone as a doctor in doing residency and in in the islands and stuff like that, it actually probably wouldn't have even worked. So luckily, she she she made that move, and that kind of created an opening for me to jump into real estate. I remember asking her one day, so you're gonna stay back and what are you gonna do? And she handed me the book, you know, Rich That Poor Dad. So I went through the book, Rich That Poor Dad. It it spoke to me uh loud and clear, and then we went to a seminar for Rich That Poor Dad, and it really kind of opened my eyes on what is the next move, what is the plan at the at the time I owned a body shop and a car dealership, and I wanted to get into real estate, so she was kind of like, All right, well, you uh I could get my license and you could uh work on wholesaling and flipping houses and stuff like that. So I was like, all right, that's a plan, all right. So I had to go to one more seminar, uh fortune builder seminar, to kind of really get the confidence to do this new thing that I've never done, right? So I went to that seminar, and coming out of the seminar, I said, you know what, I'm gonna just start taking massive action, right? Which is what is required if you're gonna ever make this transition into new development because it's very, very technical, there's a lot of money involved, and you truly need to be a professional at the next level, right? To truly understand this. But, anyways, so what happened was I I was green, right? I started getting on the phone, I knew how to make the phones ring, so I started putting out bandit signs, I started having the phone ring. I would get a property under contract. I didn't even know what an escrow was, right? But I had a buddy named Mike at the title company that I could call and he could tell me, right? So that's the importance of having a guide or having a mentor, right? So I would call Mike and he would tell me, Hey, put this on the escrow line, or put this and make sure you initial each page, or this and this, and that, right? So that just lets you know how how green I was as an investor. So from from there, I was able to you know uh flip some some properties uh as a wholesaler, and but you know, I wasn't content there. I said, you know what, I had to make the leap into uh house flipping, right? So similar to a lot of people, I went on YouTube University, I figured out how to do certain things, and I kept growing and kept building on those skills. And when I had my first house flip, it went well, right? But there's a caveat to it, right? So on my first flip, I hired a contractor and then I fired a contractor. I hired a second contractor and then I fired a second contractor. I hired a third contractor, and on my third contractor, uh I got through the project. Luckily, investors and I both made money uh on the project because we we just bought it right, but it told me right away that this business has contractor problems, and I probably wasn't ever gonna be happy with the level of execution and what I was seeing from the contractor. So I started establishing myself, started running my own projects. Uh I got really good at getting in and out of projects, and uh I had an investor out of Colorado, and from there he was transitioning from uh living in Florida, he was transitioning out, and I decided to, you know, uh go with uh construction full-time. But I I gotta be honest with you, it it wasn't easy, right? Because uh initially I copied what the other contractors were doing, but after two years of doing it, I was very unhappy. And I said to my wife, I was like, I don't think I could ever be happy, you know, uh in this business. But what happened was uh I decided that next year to to find education. I found some groups, I found a Facebook group similar to this Facebook group that you guys you found uh here, and put some people started to pour into me, right? And from there I went to a a summit and I met my mentor named Jeff, and Jeff was doing about eleven million dollars a year. And I reached out to Jeff and and I said, Hey Jeff, I got a crazy idea. I want to come up and I want to shadow you, right? I want to say shadow your business. I haven't been in a business in construction that was doing that, you know. I was uh still doing small, small numbers uh in construction. So what happened was Jeff said, Come on, come on through, right? So I shadowed, I shadowed Jeff for three days, and I just took notes. I sat in every meeting, he answered every question, and it really educated me. I really started to apply these different concepts in design build, which is the the base of you know my my knowledge and the base of you know uh how and why I do everything because it solves so many problems, right? So as a design build general contractor, my job is to take it from concept to completion, right? So when I meet the owner um of the property, I initially start with some some concepts, and then I get the architect involved, and then we start putting together hard plans, and then I pull my designer in, then we start picking finishes, and we start really managing the whole project from the concept and drilling down on the numbers, right? So so for the last eight years, I've been a design builder and a contractor. I've worked on a number of luxury homes, built custom homes, built development projects, and something told me that investors would benefit more from my knowledge base if I brought this to them, right? So, you know, that's kind of why I started this group. I really wanted to invest in the next investor. I really feel like that's uh a passion uh project of mine. So that's why I started the Pro Design Builder is to build the next set of builders, right? And developers. So so today, let's jump into the subject topic we're talking about today. We're talking about hard and soft costs and how to calculate them and the and the reasons why they're hard versus soft cost. So let's let's let's dive in, right? So let's first kind of define what is hard cost, right? So uh hard cost is the direct construction cost for physically building, right? So all of the sticks and bricks attached to putting up this structure, right? So not all of these categories are involved, but majority of them are. So let's kind of break this down on what what it is, right? So you have your site work, right? So site work is typically uh land clearing. So if you have trees all over it, you need to clear the land, and then also grading for um to have water run off a certain type of way and have the property look a certain way, or exposure a certain way, or your driveway, you have to um plan for. So that's the purpose uh of grading. Then you have your utilities, all right. So uh whether it's public or or private utilities, whether it's septic or or city, city water connection, then you have your plumbing, your electrical, all of that stuff is is important in the site work and preparing for the structure to come up off the ground. So uh then you have your landscaping, right? So depending on what part of the country that you're in, specifically for me in South Florida, is gonna require us to have a landscape architect, right? In most parts of the country, it does not require that, but in a densely populated area, they want to see a certain percentage of grass, they want to see a certain percentage of trees, and and they are are sticklers about that. So making sure that the site work, another is your foundation, right? So, what goes into that is your excavation, your concrete, your slab, right? So, depending on the soil type, you might need piles, right? So, piles are uh pretty much they drill all the way down into bedrock because the soil may not be completely stable, right? So then now the structure, including your your um your foundation, is sitting on top of the pile. So no matter what happens underneath the soil, and the soil changes, soil erodes and stuff like that, your house is sitting on the piles, so very expensive stuff, but very uh important to know and understand as you become a bigger developer, right? So uh waterproofing, right? So so the areas that have basements. We don't have basements here in in South Florida, so there's waterproofing, you know, that is required because of you know the certain type of soil, soil type, and and to to not let water intrusion into those lower spaces. So that's gonna be very important um to calculate as well, all right. So your structure, right? So you have your your framing, you have, you know, for us, we have block, uh, masonry, stucco, steel, roofing systems, all of that's gonna be important in establishing what your structure uh looks like. Then there's exterior finishes, all right. So those are your windows, your your doors, um, your up north, your your siding, your stucco, uh, your facade changes, if you're using rock, if you're using different um types of uh faux finishes, um, you know, like wood grain, you know, panels and stuff like that. Those are gonna be important for for you to know and have already in your budget, right? So it's gonna be important to lock in the details of your build, is what's gonna save you the cost, right? Costs are not gonna run away from you when you lock it in up front, you make your decisions up front with your design, with all of your looks, and you don't change your mind, your costs are not gonna run away from you, right? Then then you can lock in your builder, right? So, from there, there's also interior finishes. All right, so this includes your drywall, your uh your flooring, your cabinets, your your your painting, your trim, right? Any decorative moldings that you may have on a walls, or if if you have a coffer ceiling, right? So things like that that will end up adding adding the price needs to be calculated in in your hard cost, right? So then you have your MEP systems, right? So MEP is mechanical, electrical, plumbing, right? So what's what type of HVAC system are you does the build require, right? There's also three grades, all right. So it's always good, better, and best, right? Or we also say there's um there's uh standard, there's mid-grade, and then there's luxury, right? And then that all depends on what area of the country you're in, what type of neighborhood that's going to determine your your package that you're going to uh provide for that particular um living situation, right? And you need to have three separate packages for for each, right? What's good is um because we're accustomed to doing all of the design, one of the things that we provide is we provide design help for development projects, right? So that's kind of something that we have baked in that we love to do anyway. So um to make life easier, and then instead of having to hire outside designer, we we can handle something like that for you in-house. So um, okay, so then we also have your general condition, so temporary facilities, so temporary water, temporary electric, all right. If you have porta potties, if you have uh dumpsters, if you have site management, if you have a mobile mini on site, depending on the size of the project, right? So those are the types of things that are going to be important in establishing your hard costs, all right. And then also, too, your hard cost typically is about 65 to 75 percent of your actual cost of construction. So if you know that it this will start to help you um calculate very quickly on what this construction cost is going to be, all right. So now let's talk about some soft costs, right? And what they are and what they are not, right? So soft cost is what we consider the brains uh and the paperwork uh uh of the operation, but you you have to have both, right? There's there's no one without the other, right? So some of the common categories that you see in soft costs is gonna be your design and your professional fees, all right. So that's gonna be your architect, your engineers, your your consultants that uh are gonna help you push this along. And then you have your permitting and in and approval. So your city fees, your zoning, your uh inspections, your environmental studies, these are all things that are part of the process of figuring out what it's gonna cost to get this building off the ground. Then you have your financing costs, so loan origination, uh interest uh during construction, appraisal fees to make sure that this project is going to uh appraise and work, right? Then you have your legal and accounting fees, so contract, legal review, and tax consulting, right? So you always want to have your professionals hand in hand with any decision that that you make, right? Reviewing those things for you. So then you have your insurance, which is borderline scan, um, builders risk, liability, but you kind of have to have it. So performance bonds on special type of projects, uh, you you may need a performance bond, but if you're building privately for yourself, you may not uh really ever encounter that. Um, but as typical if you're building, you know, a type of uh developing a project for someone, you might need some sort of performance bond. All right, so then there's marketing and sales. So, how are you going to stage this project? How are you going to market this this project? Are you gonna keep it? Are you gonna buy and hold and just put it online and and rent out the units? All of those things are gonna be important, understanding and calculating how am I going to exit this particular uh property, right? Um, and then you have your developer the development fees, right? Developer fee, right? Which allows you to get paid during the project um uh while you're building the project, right? So very important stuff. So your soft cost is typically about 25 to 35 percent uh of the total project cost, right? So now you know that your hard cost is about 70 percent of uh of the project, and then your soft cost is about 30%. So now this is what it's gonna cost to get the project unearthed and off the ground, right? Get the building up uh in the sky. So now let's talk about some uh calculating cost and step-by-step framework on what you're gonna need to do to uh to get there, right? So first first step is define the project scope, right? It's very important. I remember when I was a newer investor, right? I would allow the contractor to put together the scope of work, and then I realized very early on that that was the wrong way to do it, right? So the more details that you have, if you have each room planned out, you have each finish picked out, you have each thing selected prior to getting to the point where you uh um hire a contractor, you can get the same prices for the same thing, right? It's mapped out for you. So when uh although I hated this as a contractor, and you you you bring this project out to bid, right? So now everybody's bidding on the same thing, right? They know they have the same finishes, all right. So they know they have the same concrete work, they know that I have the same drywall, they know they have the same framing. So everybody's on the same plane with the scope of work, and then now you could really see who's where um as far as pricing. Very important stuff, right? So then you you um uh get get cost estimates from um get cost estimates, right? So hard cost, you might you might use a per square foot uh number for your for your hard costs, and uh an example right now would probably be about 200 to 250 a square foot. Depending on where you're at in the country, the number obviously could be higher, so you have to really pay attention to that to know if your project is going to pencil, right? Then your soft cost, obviously, you add the 25, 30, 35 percent uh on top of that to get your soft cost, and then now you have your total cost of construction, right? So then you add some contingencies. Very important that you add contingencies just so things like inflation, things like tariffs that may affect the cost of construction don't affect you, right? Uh they affect you, but you planned for them in advance, right? So one of the things that uh I did uh well as uh as a builder is once I got the quote, uh, I would just go put the deposit down, lock in the price, order the material, and and then from there I would store it or you know, make some sort of plan for it for the things that you know were readily available, then you know, I'd I'd create some sort of plan for it. But I locked in my price on my windows, I locked in my price on those important items that tend to creep up later, that I would get an email from my vendor that says, Hey, listen, this is going up, right? So you're gonna pay more than initially when the quote was was submitted to you, right? So locking certain things in like that, buying certain some of the small things like your sinks, your faucets, your your your knobs and stuff like that, and then ordering it, checking off on it, and then storing it. So then now you know everything is here when it comes to this part is kind of how you lock in the price, right? And that's how you that's how you play the game, and you don't allow the fluctuations to affect you as much. Now, because you locked in your price with your um with your material, your builder, if he his price fluctuates, we already locked in that price, right? Unless they have some sort of escalation clause or something like that, but that's a different subject topic, right? So that's how you calculate the total cost of construction, right? So I'm gonna give you an example of what this looks like for a 10 unit uh multifamily project, right? So let's just say this 10 unit multifamily project is about 12,000 square feet, right? So we're gonna use a round number uh that's easy to work with. Let's say we're gonna use $200 a square foot uh for. This 12,000 square foot 10 unit building, and I'll just kind of break this down for you, right? So the hard cost on something like that for um the 12,000 square feet is gonna be about 2.4 million, right? So the so we're gonna add we're gonna use the number 30% um for our our soft cost on top of our hard cost, so that's $720,000, right? Then we're gonna always factor in our contingency, so five percent for the hard cost, and then another three percent for the soft cost, right? And the total cost of construction is gonna come up to three point two six one million, right? So that's how that particular project is gonna look. Then you're gonna factor in obviously, you know, your your your land costs, and you're gonna look at the comps to determine what that exit is. So typically your exit is about 25 to 30, you know, percent of the total, uh, total project. If you did it right, if you priced it right, um, and typically your bank won't lend to you unless it's penciling right. So, you know, we would definitely already get there. So let me just drop some pro tips on you uh before you go, right? So here's some pro tips, right? So always get multiple um contractor bids, right? Uh, as much as I hate that as a as a contractor builder, you have to get contractor bid, but I'll tell you this once you've established a relationship, you don't want to continue doing that with the bids, right? You want to use the relationship, and then also too, sometimes you do want to check your pricing once you've established a solid relationship with your builder, all right. Use his course historical data from past projects, all right. So you want to use this historical data from uh what's going on with comps, definitely using new projects that have closed and measuring along the way. Sometimes these projects take you know a while to get off the ground, so you want to always use historical data to know how you're gonna exit. Uh, so factor in inflation and volatility in materials. Um, I told you I shared some strategies on what that would look like for planning purposes on how to avoid some of that stuff. So update estimates as design evolved, so concepts, schematics, construction docs, all right, and then track actual versus estimates for future costs, right? Very important stuff. So having your estimate, your your your um your estimated versus actual and seeing where the differences is, seeing if you might have to do a little pivot, if something did increase, is gonna be very important in making sure that you're the best developer in the game and you're not getting stung, right? So hopefully you got some value from uh this this um uh this teaching. Uh like I said, I'm Sam, also known as the Pro Design Builder. If you're gaining value from this video, give me a like, give me a thumbs up, tell me, tell me if I'm doing if I'm doing all right, right. So reach out to me. I promise I don't bite. Like I said, we coach the next real estate investors to be developers. Have a great day.