How To Reduce Construction Cost

On today’s show we are talking about how to reduce the cost of construction. Is it worth your time to look for savings in a construction project, or should you just accept that things cost more? On one of our projects we have been going through a value engineering exercise. This is where you look closely at the design specifications and find ways to save money in the project without compromising the end product. 

You can sometimes face escalating costs because of the assumptions being made in the project. Our team has been meeting twice a week, and sometimes three times a week to pull cost out of this one particular project. 

I’m going to show you a few ways in which we are saving money on a large scale. What I’m going to share are real life examples from one of our development projects. 

We saved nearly $1M in the budget in about an hour of work.

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Episode Transcript

(00:01):
Welcome to the Real Estate Disposal podcast, your morning
shot of what's new in the world of real estate investing.
I'm your host, Victor Minash. On today's show, we're talking
about what your time is worth. Is it worth your time to look
for savings in a construction project, or should you just
accept that things are going to cost more?
On one of our projects? We've been going through a value
engineering exercise. This is where you look closely

(00:23):
at the design secifications and the bids from subcontractors and
find ways to save money in the project without compromising the
end product. Or in some cases you may choose
to compromise the end roduct, but that's a decision.
You can sometimes, in fact oftenface escalating costs because of
the assumptions being made in the project.
Our team has been meeting twice a week and sometimes three times

(00:43):
a week to pull cost out of this one particular project.
I'm going to show you a few waysin which we are saving money on
a large scale. What I'm going to share with you
are real life examples from one of our development projects.
Let's start with a flat roof. Naturally, a flat roof should
never truly be flat. It's going to collect water and
snow and eventually fail. You want enough of a slope that
the water will drain. The parapet that surrounds the

(01:06):
roof should be level and create the illusion of a truly flat
roof, but the roof itself shouldnot be flat.
The roofing subcontractor proposed purchasing Styrofoam
wedges that would sit above the roof deck but underneath the
roof membrane in order to createthe required slope.
This is 1 solution, but it addedalmost $400,000 to the cost of
the roof so that the roof would drain.

(01:28):
There's more than one way to create a slope, the wood trusses
supporting the roof. These are manufactured in an
engineer Truss manufacturing facility.
It's not going to cost extra to design these roof trusses to
include the required drainage slope.
And just like that boom, we save$400,000 in the cost of the
roof. Asking the right questions
brought the opportunity to the surface.

(01:48):
In another case, the plumbing subcontractor had assumed a more
expensive pipe for all of the drain pipes.
It turns out that if ABS pipe will meet the regulatory
requirement, then the drain pipecan drop in price by more than
50% compared with the XFR pipe. Here's another simple case of
making sure the requirements arewell understood so you can save
a lot of money without compromising the living

(02:10):
experience for the building residents.
And yet one more case. We managed to save $100,000 in
the apartment entry locks simplyby changing from a programmable
lock set and nearly $1000 a piece to a programmable deadbolt
lock with a conventional mortise.
Again, there's no real loss of functionality or user
experience. Resident can still unlock the
door with a fob or with an app on their smartphone.

(02:33):
The doors can be integrated in the building's electronic entry
system. There's no real loss of
functionality. We're just buying a less
expensive lock. Windows are another area where
we can save a lot of money. Windows come with tons of
options. The design aesthetic often calls
for black window frame in many buildings.
In fact, a lot of buildings today have black windows.
So much so that anything else other than black appears novel

(02:55):
and fresh. The usual rule of thumb is the
colored window frames cost anywhere from 15 to 25% extra.
Well, the quotes we received factual much larger price
premium for anything other than white.
All of a sudden our team fell inlove with white.
The colored frames were not worth the additional $300,000 to
the project. White frames are not going to
look cheap. They're going to be lovely

(03:16):
windows and the architectural statement can be made in other
ways apart from black window frames.
Here's another one. We looked at specifications for
the elevators. Our building has three
elevators. All of them were specified to
have a 3500 LB lifting capacity.So the obvious question is what
is driving the need for such a large capacity elevator?

(03:37):
You might want to ensure that residents moving in and out have
the ability to complete the movein with a minimum number of
trips. Some trips in the elevator are
limited by volume, and then others are limited by weight.
For example, think of a mattressand a box ring.
They're not very heavy, but theytake a lot of volume.
Boxes filled with books In China, those can be heavy.
And if you fill an elevator withboxes, you might run into the

(03:57):
weight capacity of the elevator.But then why do all of the
elevators need to be 3500 LB capacity?
Maybe we could reduce two of them to 2500 LB capacity and
just keep 1 of 3500 lbs. There are some substantial
savings there. Examining the finishes of the
elevators can drive cost. Stainless steel is the hardest
and most durable finish, but there's other solutions that

(04:18):
could be lower cost. Maybe only the high capacity
elevator that would be used for moving should be stainless
steel. The others could still have a
very attractive but less expensive finish where physical
damage is much less likely to occur.
These are all examples of ways in which we can reduce the cost
of a project without compromising the living
experience of the residents. And by the way, this was all
done in under an hour. We saved close to $1,000,000 in

(04:41):
the budget for the project in anhour.
I happen to think that's a pretty good hourly rate or
pretty good productivity for onehour's worth of work.
And let me point out, this was all achieved without arm
twisting the subcontractors one bit.
We're not negotiating the Subs down in price, although that may
come later. Right now, this is strictly
focusing on the scope of work. As you think about that, have an
awesome rest of your day. Go make some great things happen

(05:04):
and we'll talk to you again tomorrow.