The Log Home Industry Expert

With uncertainty engulfing our economy, why would anyone build now? We are confronted daily with customers that are uneasy about moving forward with their building project in the middle of this current economic mess. Of course, each person or family has to evaluate their own financial situation and no one should build if they can’t afford it. But let me make three points before you decide to shelve your building plans:

1. Building costs will never be lower
2. Mortgage interest rates are at an all time low
3. Inflation (or hyperinflation) is on the horizon

See Yourself in 10 Years

Will you be kicking yourself and saying “I knew I should have pulled the trigger when building costs were at an all time low?” In 2019 material and labor costs are much higher and interest rates are on the rise. There are more government regulations and hoops to jump through, which are driving construction costs up even further. Thanks to stimulus spending a decade earlier, the country is experiencing double digit inflation. The smart money locked their 30 year mortgages at interest rates near 5%, and are repaying those loans with inflated dollars. And to make matters worse, since you didn’t build your home in 2009, you missed 10 years of enjoying it.

We all wish for a crystal ball so that we could gaze into the future and make better informed decisions today. Even without a crystal ball, the signs are pretty clear. We are in a tough economic environment; entering the 17th month of the longest recession since the Great Depression. It will probably be a long and protracted recovery before we are back to more normal. Some of the most pessimistic economists are predicting the recovery could last 10 years before real estate values are back to pre-2007 levels.

The Role of Inflation Tomorrow

At some point, we are going to have to pay for the stimulus spending. I’m not going to debate the merits of stimulus spending other than the reality that we cannot continue spending trillions and trillions without paying for it at some point in the future. It either gets paid via higher taxes or, the more politically expedient way, inflation. With all the money the Fed is pumping into the economy, once the recovery starts, inflation is bound to rear its head. Once inflation takes off, you best have your money invested in hard assets that will increase or retain real value. Better yet, leveraging those assets with fixed low interest rate loans that can be repaid with inflated dollars will yield a double inflationary hedge. Whatever you are feeling about real estate and, many people are not feeling very good, real estate is still the best protection against inflation.

The Upside

New home construction is at its lowest recorded level and there are more builders and subcontractors looking for work ever than ever before. Currently, it is a buyers market with tremendous opportunity to make deals that were unthinkable just a few months ago. Plus you don’t have to wait as long to begin building your project.

If you currently own your building lot and bought it before last year, most likely, your land is not worth as much as pre-2007 levels. But, what does that really mean? If you bought your land to hold long term and build say - a retirement home or family cabin to be held for a number of years and/or passed on to your family, then the land is the land. It still has all of the characteristics, beauty and other reasons that prompted you to buy it in the first place. If your intention is to build on your land, now is the building opportunity of a lifetime.

Bottom Line

Chances are pretty good that prices will not go much lower than they are today. It is more likely there will be upward pressure as the economy improves and inflation and interest rates will rise. Bottom line, if you are going to build, it is a far smarter bet to build today than wait. This is a historic time with historic opportunity.

Written by Tom Heatherington

There has not been a better time in years to build your log home!

If you permit the media to drive your decision making, you already know this is the worst possible time to make a lifestyle change. The housing market is in the tank, stock charts look as if they were printed from an oscilloscope, and upcoming elections (are intended to) make us feel anxious. If you include war news, terror reports, natural disasters and the Hollywood writer’s strike you must know this is absolutely the worst time to make serious lifestyle changes.

As the editor of the Log Cabin Directory, I have a unique perspective on the log home and timber frame business. In my daily routine I speak with people on both sides of the log home sales process. I answer phone calls and emails from prospective log home buyers, and I speak with builders, dealers and manufacturers on a regular basis.

It is no secret that the home building industry in general and the real estate market in particular are experiencing a downturn, which actually has been anticipated for a number of years. Although this slump has impacted the log and timber home segments of the market, it is not as severe as that being experienced by the conventional home building market. When such cyclic events occur buyers will often postpone their plans, which usually prompts manufacturers and builders to focus more on improving customer service and sharpening their pencils to attract new customers.

Economic cycles are part of life and there is not much new in this current phase. These cycles are always gut-wrenching, as we are experiencing them, but somehow we always get through them and business eventually goes back to normal. Think back to as recently as the dot-com meltdown of 2000-2001 when the stock market was blowing-off billions of dollars in profits. Companies were going bankrupt, banks were overextended and we watched TV like frightened deer in the headlights while the talking heads convinced us how bad things were. Imagine what your reaction would have been back then if someone told you that you’d be smart to build a custom log home, because it would probably double in value over then next 5-10 years.

This is why I believe that there is no better time to build a log home than now, because if you are a buyer, these current market conditions are exactly what you have been waiting for – whether you realize it or not. With the housing industry soft overall, you can expect to receive more attention and better service from builders than at anytime in recent years. Manufacturers have been reminded that you have a choice, and are focused on making you want to do business with them. This is a buyers market and as history has proven over and over again, that dream home of yours will cost you more to build later than it will today.

Any savvy investor will tell you that the time to buy is when a stock is out of favor. The apprehension from log home buyers in today’s market creates a huge opportunity for those willing to ignore the media’s fear-mongering and proceed with their dreams. Most people considering a log home have the funds or the credit worthiness to complete the process. The only thing lacking is the courage to ignore the crowd’s ill-advised mindset.

Now if you are planning to build a log home on spec and try to flip it for a quick profit, this may not be the most ideal time to play real estate roulette. However, if building a log or timber frame home to live in and enjoy has been part of your plan, there hasn’t been a better time in years to make it happen.

I am no Pollyanna. On the contrary, I have three daughters so I have been hard-wired to worry about everything. Additionally, I share the same concerns about the economy and my family’s future as you do yours, but every now and then someone has to slap me and tell me to focus on the things I can control. If a log home is part of your dream, take a lesson from history and don’t let Drudge or the ‘alphabet news channels’ talk you out of realizing your dream.

About the author: Tom Heatherington is the founder and editor of the “Log Cabin Directory”, one of the largest log home information sources online. He is the author of “The Complete Small Business Internet Guide” and numerous articles on log home living.

As you begin the process of financing your Log or Timber Frame home, you will find that there are some differences compared to financing a conventional home.  The following is a list of things to consider:

1. As you interview lenders, look for a loan officer who is experienced in Construction lending.  Even more importantly, make sure the lender is experienced in Log Home and Timber Frame construction lending.  You may have many questions during the process and you will want to deal with an expert that you can rely on.
2. What is the lender’s policy as it relates to paying the required upfront deposit as well as the final payment to the Log or Timber Frame company?  You will find that many lenders shy away from financing these types of homes because they are not comfortable paying out monies before materials are on site.  Alternatively, the Log and Timber Frame companies require a down payment to begin milling the logs or timbers.  Keep in mind that the log or Timber Frame package is unique to each client’s project.  The down payment deposit is your “good faith” commitment towards purchasing that package.  Unless you have the financial wherewithal to pay these monies out of pocket, you will want to be sure your lender will accommodate the required payment terms of your Log or Timber Frame Company.  Understanding this upfront can save many challenges later in the process.
3. During your research, you will find that lenders offer two types of Construction loans.  I refer to the first as a “Two-time Close,” which means the lender will provide you with a construction loan that will need to be refinanced into a new permanent mortgage loan once the home is completed.  This type of transaction requires that you re-qualify for the new permanent mortgage and it also requires that you pay two sets of closing costs.  A less expensive approach may be a “One-time Close” loan.  In this situation, the lender provides one loan for the construction period.  When the home is complete, the loan will automatically convert to a permanent mortgage.  Lenders policies vary, but for the most part, this type of loan will not require you to re-qualify or pay new closing costs when the home converts to the permanent mortgage.  Typically, during construction, you will pay an interest only payment based on what you owe each month.  As your balance increases, so will your monthly payment.  When the home is complete, you will begin to pay a Principal, Interest, Tax and Insurance payment (like that of a normal conventional loan).  Construction loan terms vary from 6 months to 12 months and beyond.  Check with your lender.
4. Once you have determined which lender you will use, it is recommended that you apply for your financing early on in the process.  Understanding how much you can qualify for up front will aid in your discussions with your Log or Timber Frame company as well as with your builder. Most lenders do not charge for a pre-approval.
5. Understanding the real estate market in the area that you are going to build can be very useful.  It’s important for your lender to know if your new home will be marketable in your area.  For instance, here are some items to consider sharing with your lender:  Is the size home you are considering building in line with other homes in the area or will it be an over-improvement or an under-improvement?  Does your property include acreage and if so – how many acres?  Is this typical for the area?  Is the property zoned agricultural and is there anything growing on the site?  Are there other log or Timber Frame homes in the area or will your home be the first?  Are you considering an alternative approach to power (i.e.; solar)?  It’s critical that you discuss these items with your lender up front.  It can save you from challenges late in the processing of your loan.
6. What type of down payment is going to be required?  You will find that each lender has different policies.  Most lenders will require a 5%, 10% or 20% down payment (down payment percentage is typically determined by your loan size).  This means 5% to 20% of the overall project cost (land plus construction costs of the new home).  As an example, if you are purchasing the land with the construction loan, you would add the purchase price of the land to the budget (cost breakdown) for the home.  You would be required to bring cash to the loan signing of 5% to 20% of the total amount.  If you own the land outright, the equity in the land would most likely count towards your down payment needs.  In this scenario, you may not be required to bring any cash to the loan signing.  The equity in the land may already be your 5% to 20% (or more) down payment.  If the land equity is sufficient, you may be able to finance the closing costs into the loan as well.  Discuss your scenario with your lender up front to determine if you will be expected to bring any cash to the loan signing.
7. Are you considering beginning any construction work on your site prior to loan signing/closing?  Pre-start activity is generally acceptable, but you should check with your lender before beginning any construction work on the property.  There may be a challenge with the Title Company insuring the lender if any work has begun prior to the loan signing.  If it is determined that it is acceptable to begin work ahead of time, keep good records of anything you pay for out of pocket.  You may be asked to prove payment for these items.  A copy of the Invoice and canceled check or credit card receipt should suffice.  Any payments you make ahead of time should also be credited towards your down payment needs (listed in # 5 above).  Once your initial down payment is made, any excess items paid for may be able to be reimbursed to you at the loan signing.  Discuss this with your lender to see if you can be reimbursed for any of these items.
8. What happens if your costs exceed your original budget?  This is a common occurrence with construction projects.  The excess can be caused by something outside of your control or can be caused by an upgrade that you make along the way.  Either way, if there are not sufficient funds in the loan to pay for the overage, then you must pay for it with your own cash.  Perhaps a better way to handle this would be to build a contingency factor into the loan amount.  This is accomplished by increasing your loan amount for potential cost overruns.  A good rule of thumb is to build in 5% to 10% of the budget as a contingency factor.  This is all possible as long as the appraised value of the property supports the extra dollars requested in the loan.  Typically the lender will not require that you use the contingency dollars.  It is only there for you should you need it.  Ask your lender to explain their policy on the use of contingency dollars.
9. Is Interest Reserve an important feature for you with the construction loan?  Interest Reserve is a dollar amount that is added to your loan and is used to make your monthly interest payments during construction.  Instead of writing a check each month for the interest that is due, the payment is taken out of your loan and made for you.  During construction you actually make no monthly payments.  At the end of construction, you owe more money because you have borrowed those monthly payments using the loan proceeds.  This feature is not important to everyone.  It may be useful for a client who wants to sell their current home, but would like to live in this home while the new home is being built.  Making two house payments on a monthly basis may be a challenge while the other home is trying to be sold.  Having an Interest Reserve could be a nice feature in this scenario.
10. Are you considering being an Owner Builder?  Being involved in the building of a Log or Timber Frame home appeals to a lot of people.  If you are considering overseeing or actually doing some of the construction work on your own, please discuss this with your lender up front.  Some lenders will want to be sure that you are experienced enough to oversee the project.  You may be asked to provide a resume of your experience as it relates to construction.  Other lenders may not allow you to be an Owner Builder at all.  Be sure your lender will accommodate this for you.

This article was written by Paula Murtha with Chase Home Finance. For more information on log home financing, please contact Paula by email at Paula.Murtha@chase.com or call 303-759-6762.

Subcontractors and tradesman are scrambling to line up jobs for the 2007 building season. New construction has been in a slump for over a year and many production and spec builders have significantly cut back building new units in an effort to reduce inventories. The cut back has left many of the subcontractors and tradesman looking for work or laying off employees.

The National Association of Home Builders single-family Housing Market Index has risen systematically from the lowest point last September, showing that builders’ assessments of the demand side of the market have been on the mend following the sharp contraction from the highs of mid-2005. Most indicators show that housing has past the bottom and demand will begin to increase. Higher demand will translate into high prices for labor and materials.

For prospective custom home buyers, now is the best opportunity to lock up builders and subcontractors. Those who delay starting their building project much longer in hopes that they will find even better deals will be disappointed. As the housing market starts to heat up again, builders and subcontractors will be filling their schedules. Now is the time to begin your dream log home.

Is a log home a good investment? Investors are frustrated with the performance of investment options in the new millennium. Stocks, bonds, mutual funds and other financial investments are not performing as many would have liked. Most investors, however, have found that the best performing asset in their portfolio is their home. As a result, real estate is viewed as a safe haven for investors with appreciation far outpacing other investments. With the security and growing values of residential real estate, a growing number of homeowners are now investing in their second home.

There are a wide variety of reasons why people build or buy second homes. City dwellers may want to escape to their home in the country for weekends and holidays. Northerners may want a home in the sun where they can golf year round. Southerners may want a home in the mountains close to a ski resort. There are also the Baby Boomers…a large number are eying retirement and are building second homes anticipating it will become their main residence.

Although the primary reason for purchasing a second home is lifestyle, investment consideration comes in a strong second place. There are several reasons why owning a second home makes good financial sense.

For example, the appreciation of vacation residential property is expected to continue to rise. Our country’s changing demographics are a good predictor that second home ownership will continue to be strong for the foreseeable future.

Baby Boomers reaching retirement age have more wealth than any previous generation; surveys show that ownership of a second home consistently ranks in the top two priorities for this group.

There are also tax benefits to second home ownership. Mortgage interest is deductible for first and second homes making home ownership one of the best leveraged investments. If you move into your second home and live there for at least two years, you can avoid any tax on the sale of your property.

Homes and real estate have always been safe investments. With a growing number of reasons why second home ownership makes sense, the demand for good locations and quality homes will rise. Some experts predict that second home ownership will become nearly as common in the future, as two cars are today for most households. Investment in a second home today is undoubtedly a wise decision for the future.

We started the Total Home Solution™ as a response to what our customers were telling us,” says Jim Young, President of PrecisionCraft Log and Timber Homes. “Our customers want a complete building solution from A to Z.” Working with their in-house architectural firm, Mountain Architects, Inc., PrecisionCraft developed a process known as the “Total Home Solution™.” “It became very clear that we had to expand our view of the product we were offering. We are not just selling logs and timber. We’ve redefined our product now as a building process from conceptual design through complete construction” Young explains. Starting with the conceptual design, the designers at Mountain Architects work with their customers to define the general parameters of the home. “The conceptual design is really a feasibility study” says Tim Schafer, lead architect for Mountain Architects, Inc. “We put a lot of effort into the design phase. Our homes are not out-of-the-box or planbook houses. Each home is custom designed to achieve the look and feel our client’s have in mind. We cater to clients that are looking for a particular design style using a combination of logs, timbers, stone, glass and other elements and features that they may visualize,” explains Schafer.

PrecisionCraft’s manufacturing and product philosophy is to let the design control the product elements. “So many companies offer one or two products. Unfortunately, this limits what can be achieved in the design. At our company, design drives manufacturing. Our manufacturing is set up as a custom shop to produce most any log or timber element that a designer can dream up,” says Young.

As part of PrecisionCraft’s Total Home Solution™, they have established a unique process for identifying and selecting builders for their customers called “Builder Due Diligence™”. “Selecting the right builder may be the most critical decision in building the home. Competency, financial ability, and references must check out before ever considering a builder,” Young explains. “Choosing between qualified builders also involve aligning the builders’ abilities with the clients expectations as to budget, timing and quality. Budget is always an issue and the conceptual design has to be in-line with realistic construction costs before the project can move forward.”

Once the conceptual design is complete and the client is satisfied with the preliminary budget analysis, Mountain Architects will prepare the full construction drawings. “Building code requirements are becoming much more complex especially when building in mountain and resort areas,” says Schafer. “We have projects in just about every major resort area in the country and we’re pretty good at knowing what is required”. All PrecisionCraft projects are engineered by independent structural engineers. “Our clients are making a substantial investment in their homes and we feel requiring engineering is good insurance to address the structural and geotechnical aspects of the home before construction starts,” explains Young. “It’s all part of our Total Home Solution™ philosophy.”

“A successful building project is about bringing all of the elements together in a smooth and orderly process to achieve a dream home for our customers,” says Young. “It requires looking at the big picture to get to the Total Home Solution™.”