In the real estate world, for any project, there is any number of inputs that define the overall project cost, with construction cost being one of them.
Project cost is comprised of both hard and soft cost expenses. Hard costs are tangible and directly relate to the physical construction and furnishing of a building/space. Construction cost is comprised of the physical labor, material, equipment, and management costs necessary to build or remodel your project. These costs are made up of scope of work items that fall within traditional Construction Specifications Institute (CSI) divisions:
01 – General Requirements 09 – Finishes
02 – Existing Conditions 10 – Specialties
03 – Concrete 11 – Equipment
04 – Masonry 12 – Furnishings
05 - Metals 13 – Special Construction
06 – Wood and Plastic 14 – Conveying Systems
07 – Thermal and Moisture 15 – Mechanical / Plumbing
08 – Doors and Window 16 – Electrical
Contrary to hard construction costs, a project also includes things that are referred to as soft costs, because they aren’t something you can touch and feel like the hard costs. Examples of soft costs include:
Professional services (architecture, interior design, engineering, and project management fees as examples)
Land Procurement/Acquisition
Appraisal Review
Financing/Closing & Interest
Governmental Recording Charges
Marketing
Legal Fees
Insurance
General & Administrative Expenses
Operating Reserves
The above list may not be all-encompassing as every project is unique, creating a need to thoroughly explore what inputs determine potential costs on your project. As a rule of thumb, it is also commonplace to include a contingency, both within the hard and soft costs for the project. The dollar value or percent of the total cost is dependent upon the size of your project.
If you are contemplating a new real estate project and would like help in establishing budget categories, reach out to SHYFT Collective – we can help!