Advice & Help

Avoid the Financial Trap of an Unfinished House

Unfinished house

An example of an unfinished house located in Trelawny’s north coast

You see them across Jamaica: foundations without walls; walls without roofs; floors without tiles; kitchens without fixtures. They are  examples of the unfinished house  that an owner  is unable to complete for one reason or another. What went wrong with these unfinished houses? For your real estate investment you may be considering adding that extension to your house, building a second house or even doing a small housing development. An unfinished house can result in severe financial loss and even force you to abandon your project. How can you avoid the financial trap of an unfinished house?

Obtain the appropriate Permits

Years ago I encouraged a client to build a vacation villa on his sea view lot in a popular north coast resort and rent it to earn foreign currency. He agreed, and contracted my services as the Project Manager. Three months into the construction, the roof almost completed, swimming pool dug, floors to be tiled.  I received a letter from the attorney at law of the resort company. The letter demanded that I cease construction immediately. It claimed that the building was built too close to a boundary, the roof was too high, therefore I breached two covenants on the certificate of title.

The lawyer and resort management arranged a meeting with me and demanded that as a remedy, I must lower the roof and knock off one side of the house or pay them US$10,000 plus legal fees. In reply, I silently reached for my documents and showed them that a year earlier they  approved in writing  the drawings of the house. A sheepish look of embarrassment fell on their faces as they realized the folly of their claim. The meeting ended. Had I not received their permission the project would have suffered a traumatic blow financially. The lesson is clear, obtain the  permits from the appropriate authorities – Parish Council,  Ministry of Health, the owner of the development  National Environment and Planning Agency (NEPA) – before commencing to build.

Calculate your Costs Carefully

Create a team of professionals. Retain a lawyer to guide you through the restrictive covenants of the certificate of title so you will know what you can and can’t do to the property. Hire an architect to do your drawings. Avoid making changes to the drawings during construction. It can cause unforeseen costs over runs and even negate your permits. Next on your team is a quantity surveyor. He/she will examine the architect’s drawings and quantify the labour and material costs for every requirement of the drawing. Your builder/contractor, whose function is to supervise the construction, completes the makeup of your team.

It’s quite acceptable to negotiate rates and prices with each professional of the team, but proven competence should take preference over merely lower fees. Add 5% for escalation cost as a buffer.  You now know the cost of your investment project. You are ready to negotiate the terms of your loan if you are seeking financing or plan your cash flow to coincide with each phase of construction. Scale back on your plans if your budget cannot meet the cost. It’s always best to start modestly and do additions later, than to over extend yourself and unable to complete as scheduled.

Prepare for Surprises

The best plans are often derailed by unforeseen circumstances. Unchecked theft of materials from the site can bleed your funds. Build in a safeguard against theft. If you can’t supervise the construction yourself, hire trusted security. Most financial institutions will insist that you take out a construction insurance policy against natural disasters, injuries, accidents or property damage.. Should any such incidents occur you will be immune from the extra costs involved

Every unfinished construction project that dots the landscape across the country has its own story of surprise, disappointment, miscalculation or losses. Cost over runs may force you to renegotiate a loan, unexpected delays could cause delayed revenue, stop orders from the authorities can entangle you in costly legal battles and force changes to the building. Plan, prepare and budget carefully so that you may avoid the financial trap of the unfinished house.

About the author

Sydney Davis

Sydney Davis is the Managing Director of Sydney Davis and Associates. He is a member of the Realtors Association of Jamaica and licensed by the Real Estate Board of Jamaica as a dealer, and property manager. For almost two decades, Sydney Davis & Associates has offered sales, and property management services for residential, vacation, and strata properties in Jamaica. Our company specializes in providing our clients with investment opportunities in real estate. Through our blogs, ebooks and personal consultations, we provide expert advice about what you need to know about properties in Jamaica. Our office is located at 80 Constant Spring Road, Kingston 10, Jamaica.