VineOnBrick Blog

The Worst Self-inflicted Disaster

Jun 9, 2018 2:44:55 AM / by Alex Bajc, VineOnBrick

... that can happen to your project is running out of funds midway through construction

Unfinished

There is an old saying: The only thing worth less than a bare piece of land is land with an unfinished structure on it… (just to make sure the riddle is clear: because you need to pay somebody to demolish the structure in order to get back to bare land state.)

It’s definitely counterintuitive, it might defy logic, it probably sounds unfair, but that is how this universe is set up. For me, the easiest way to wrap my mind around it is answering a couple of questions — if you have two options to choose where to invest (or lend) your money, which one would you pick: a project that is just starting from bare land, or a project that somebody started and got stuck? … and in case you are still looking at the one that got stuck, would you expect a discount and how deep?

There are also other practical questions: who is going to insure the project that was stuck, who is going to sign off on the structural integrity, who else has a lien on the project, how much rain did it take, is there black mold, how much are architects and contractors going to charge in order to continue…..for all these uncertainties and mess I would expect a deep, deep discount.

There are points in the project where you can stop the project for some time or indefinitely and not lose much. For example: you can finish entitlement and stop, or you can finish the permit process and stop and wait for a better economy. You can even stop midway through design. But stopping during construction is a disaster. Even though there are a few semi-gracious ways to stop during the construction, running out of funds is the worst self-inflicted disaster. Before starting the construction you absolutely want to make sure that you have lined up your budget and that funds are reserved and easily accessible.

Do you have nightmare scenarios to share? 

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