The Economics of Deconstruction: Part 2

The ReUse People SpecialsMany salvage organizations, especially nonprofit ones, justify providing cost-free deconstruction services in the belief that selling the recovered materials will more than cover expenses.

In last month’s Velvet Crowbar, I attempted to demonstrate that professional organizations operating legally (employees on the payroll, licensed and insured) will accrue frequently overlooked costs that must be met at some point in time.

I suggested that the cost to deconstruct a 2,000 square-foot house was just over $12,395 and that there were still more costs to consider above and beyond those of deconstruction. Before I detail those other costs, let me respond to an argument I have received from several readers who called me to task for a ridiculously low deconstruction estimate.

I’ll concede at the outset that my figure was low. I wanted to get the attention of those who think deconstruction can be done for material sales only. In addition, my example of costs and markups could conceivably be achieved by a large contractor doing hundreds of projects a year.

In reality, there are no large contractors doing full building deconstruction, as opposed to exclusively remodels or cherry picking. And very few in this business are completing 40 or 50 projects a year. Those contractors who are that active will have overhead costs close to 30 or 40 percent and a profit markup of at least 30 percent (a 30 percent markup yields a 23 percent margin in a perfect world). Using these more realistic figures, the total deconstruction cost to the customer would be $18,000 to $20,000.

Since the deconstruction contractor is often also a retailer, brick and mortar costs must be added:

  • Rent – about $60,000 per year, based on $0.50/square foot/month ($6.00/square foot/year for rent including utilities). Assume a minimum of 10,000 square feet under roof with some outside laydown space for lumber.
  • Salaries – at least 3 employees for a retail store that is open 10 a.m. to 6 p.m., 6 days a week. One employee at $15/hour and the other two at $12 for a total of $39/hour. Adding workers compensation and payroll taxes without any benefits equals $51.09/hour, $2044/week, $8,857/month, $106,288/year.
  • Liability insurance – probably a minimum of $5,000/year.
  • Vehicle expenses – including forklift (even if renting) must cover fuel, insurance, depreciation and registration. I would guess a minimum of $3,000/year.
  • Miscellaneous, including disposal, building maintenance, tool and supplies – assume at least another $3,000/year.

Yikes! Now we are up to an additional $177,288 in annual retail cost or $17.73/square foot. The square footage of warehouse space allocated to the materials from a single house is probably around 1,700 square feet, allowing for proper display, aisles, receiving and checkout. That means that $30,141 in inventory or holding cost for that house ($17.73/sf x 1,700 sf). The best inventory turnover I have seen is four times per year, so $30,141/4 = $7,535. This is the cost of holding the inventory for three months. If turnover occurs only twice, the holding cost would be $15,071. Either of these must be added to the cost of deconstruction ($18,000 to $20,000).

In the final analysis a minimum sales price of between $25,535 and $35,071 must be obtained from one house-worth of materials in 3 to 6 months just to cover costs. Any retailer worth his or her salt must achieve a gross margin of 30 to 50 percent just to stay in business, which means the materials sales have to be between $40,000 and $70,000 in order to pay for bookkeepers, managers/owners, accountants and lawyers, AND you have to do that in three to six months on each project.

Remember, for profit or nonprofit, if you have no margin you have no mission!

Employment Opportunity

TRP is seeking a versatile individual for the position of Crew Chief. Primary responsibilities include managing 5 and 10 person crews on deconstruction projects, maintaining jobsite safety and assisting the TRP deconstruction manager with estimating and bidding. The candidate must be bilingual (English/Spanish), adept in the use of Microsoft Office, knowledgeable concerning residential construction, and skilled in oral/written communication. Compensation is a combination of base salary plus incentive. TRP offers health care, the usual holidays and vacations, flexible spending accounts, a 401(k) program, and an outstanding work environment.

Specials of the Month

At the Oakland warehouse we are featuring plumbing and regular Douglas fir lumber. Receive 25% off the price of any plumbing fixture or Doug fir purchase through December 31.
The ReUse People Specials
The Los Angeles warehouse is offering a 15% discount on everything except individual lumber pieces. Receive 15% off the price of all eligible items in the warehouse through December 31.
The ReUse People Specials

New Inventory

The Oakland warehouse has received new shipments of versatile flagstone. Get some while supplies last!

 

New inventory at the Los Angeles warehouse includes a bronze finish hanging lamp, 3-panel vintage doors in various sizes, and a vintage cast iron pedestal sink.

The ReUse People Specials The ReUse People Specials The ReUse People Specials

Location and Contact Information

TRP ReUse Warehouse - Oakland
9235 San Leandro Street
Oakland, CA  94603
(510) 383-1983; toll-free 888-588-9490
Hours: Mon-Sat 9:00-6:00 Closed Sunday

TRP ReUse Warehouse - Los Angeles
3015 Dolores Avenue, Los Angeles, CA 90065
818-244-5635
Hours: Mon-Fri 10:00-5:00; Sat 10:00-4:00

Please visit our partnering warehouses:
Habitat for Humanity ReStores, Orange County (two convenient locations)
The Home Improvement Store That Builds Homes
1656 West Katella Avenue, Anaheim, CA 92802
(Euclid and Katella Avenue)
(714) 434-6266
Mon-Fri 9:00 am- 8:00 pm;
Sat 9:00 am- 6:00pm;
Sun 11:00 am- 5:00 pm

The Home Improvement Store That Builds Homes
1400 Village Way, Santa Ana, CA 92705
(McFadden Place Shopping Center, exit 55 Freeway at McFadden)
(714) 434-6266
Mon- Sat 9:00 am- 6:00 pm;
Sun 10:00 am- 5:00 pm

Habitat for Humanity ReStore, Kansas City
4701 Deramus, Kansas City MO 64120
(816) 231-6889
Hours: Mon-Fri 10:00-6:00; Sat 9:00-4:00; closed Sunday

The ReUse Warehouse
1400 East Geer Street
Durham, NC 27704
(919) 219-4913
Hours: Mon-Fri, 2:00-6:00; Sat, 9:30-5:00

Second Chance Building Materials Center
1423 West Grove Street
Boise, ID 83702
(208) 331-2707
Hours: Mon-Sat, 9:00-6:00; Sun, 12:00-5:00

Roaring Fork Valley Habitat for Humanity
7025 Hwy 82
Glenwood Springs, CO 81601
(970) 945-7733
Hours: Mon-Fri, 10:00-5:30; Sat, 10:00-5:00; Sun, 11:00-4:00

Stardust Building Supply
3901 E. Thunderbird Road
Phoenix, AZ 85032
(602) 459-9803
Hours: Mon-Sat, 8:00-6:00; Sun, 10:00-4:00

Habitat for Humanity ReStore, Salt Lake Valley,
1276 South 500 West
Salt Lake City, UT 84101
(801) 263-0136
Hours: Mon-Sat 9:00am-6:00pm; closed Sunday

Habitat for Humanity ReStore, Summit & Wasatch Counties
6280 N. Silver Creek Drive, Silver Summit, UT
(435) 487-9015
Hours: Wed-Sat 10:00-6:00; closed Sunday

Recycle Utah
1951 Woodbine Way Park City, UT 84060
(435) 649-9698
Hours: Mon-Sat 8:00-5:30; Sun 10:00-4:00

Reuse Depot
50 West Madison
Maywood, IL 60153
(708) 223-0502
Hours: Wed-Mon 10:00-6:00p; Closed Tuesdays

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