There are several reasons why modular buildings are up to 20% less costly than conventional stick-built structures. In this installment, we will examine the first reason behind the cost savings associated with modular buildings: Construction Financing.
Typical modular construction timelines are around 50% faster than conventional site-built construction. A quicker construction timeline creates several financing advantages, including reduced interest costs, faster return on investment, reduced holding costs, and improved cash flow.
Reduced Interest Costs
Construction Loans
These loans typically have higher interest rates than traditional mortgages. A shorter construction period means less time accruing interest on the borrowed funds, leading to lower overall interest expenses.
Interest-Only Payments
During construction, you usually only pay interest on the drawn funds. A faster build means less time paying interest.
Faster Return on Investment
Rental Properties
If you’re building for rental income, a shorter construction timeline means you can start generating revenue sooner.
Commercial Properties
Businesses can start operating and generating income sooner, leading to faster returns on their investment.
Reduced Holding Costs
Insurance
You’ll pay for insurance on the property for a shorter period.
Property Taxes
You’ll pay property taxes for a shorter period before the property generates income or is sold.
Security Costs
If necessary, you’ll incur security expenses for a shorter duration.
Improved Cash Flow
Faster completion allows you to access equity sooner (if selling) or start generating income sooner (if renting or for commercial use), improving overall cash flow and financial stability.
For example, if we finance a $1,000,000 construction project at 7% interest for 18 months for stick-built construction, the total financed amount will be $1,056,329.82. If we cut the financing period by 50% with quicker modular construction, the same $1,000,000 project financed over 9 months at 7% will have a total financed amount of $1,029,392.91. In this example, using modular construction to complete the project 50% faster saves $26,936.94 in construction financing costs.
Construction Financing Comparison
