Losing $250,000 | My Response To TheStradman

What's up you guys, it's Graham here. So this is definitely not my normal video, but I've had quite a few people reach out asking for me to talk about what's happening with The Stradman and losing $250,000.

Now, for any of you unfamiliar with who The Stradman is, he's an automotive YouTuber who buys a wide range of exotic cars, customizes them, and then vlogs the entire process from beginning to end. In fact, I featured him in one of my own videos about a year ago, where he shared all the details behind his business, how much he earns, and how he went from being homeless, living in a car, to now owning a million Bugatti and a fleet of customized Lamborghinis all within just a few years.

Instead, it was planned to build a custom million-dollar dream home with an 18 to 20 car garage. Well, that's what brings us to the problem. His plan, on paper, is that the complete build, including the cost of land, would be anywhere from $1.8 to $2 million. It would take between 10 and 12 months to finish, and he would get to regularly post updates in the construction process on his channel.

But building a house like this does not come without a lot of complications, and that's what brings us to this latest video. This is why so many people reached out to me to comment on it. I'm just going to play a portion of his video here because he sums it up perfectly. "I got the original bid to build the entire house, just the lumber. Just the lumber portion was approximately $50,000. So two months ago, August 2021, we had the lumber rebid because now we're ready to frame the house. The bid came back at $500,000 over the original bid. Oh, it's, I mean, the entire project honestly has been a disaster from the get-go. Then we had to redesign; that took just absolutely forever. And then after that, finally got the project bid out. But then COVID struck."

For any of you unaware of what's happening and why things are getting so much worse, let me bring you up to speed. In early 2020, when the pandemic hit and people were recommended to stay indoors, the production of housing materials began to slow down because manufacturers had no idea how much they would need. After all, they don't want to spend money and resources to stock up on more lumber if no one's going to be around to buy it.

But what actually happened is that they underestimated how much lumber they would need over the following year. Because shortly after, everything went crazy with record low interest rates; demand for real estate skyrocketed. All of a sudden, people were home completing DIY projects, real estate investors were building as much as they could, and they couldn't even build fast enough to satisfy all the demand.

But the one thing that started to hold them back was a lack of lumber. Supply chain issues and labor shortages meant that lumber was not as easily accessible. There wasn't enough of it, and as a result, prices went through the roof—pun intended. At the peak, lumber was up 100% year over year. Builders were spending an extra $6,000 to finish construction, and there's no telling how long that would last.

In The Stradman's case, it's not like he could just front $50,000 and store a whole bunch of wood in a warehouse. Instead, builders update their quotes periodically throughout the construction process and then adjust as needed depending on what materials have gone up or down in price. In a normal market, fluctuations like this are usually pretty minor, but in this case, the lumber cost has doubled.

The problem is for every month the project gets delayed, it costs an extra $50,000 for his loan interest, pays rent on both the house and warehouse, and a multitude of other costs just continue to add up. Not to mention, he only has a one-year loan to complete the house, so if it's not done by April of 2022, he will be paying fees on fees on fees.

The terms of the contract state the house needs to be done within one year, which looking at this point, it's like it’s just not going to happen—there's just no way. But the one thing I know about banks is like they don't really care; they just pay. The choice now becomes: does he pay $50,000 for lumber that he was previously quoted at $50,000 for, or does he wait and hope the price of lumber goes down more than $50,000 a month to the point where he could still finish on time and save the extra money?

Alright, so in terms of his decision to either wait for prices to go down or pay more money now, let's break this down. Because as a real estate investor myself, I find the entire situation quite unique because either way, it's going to end up costing more money. That's because on the one hand, if he waits for prices to go down, they have to drop faster than he's spending money on all the other previous costs I mentioned, and once he reaches April of 2022, if he doesn't refinance his loan, he incurs penalties and fees that make the situation just that much worse.

So in this case, lumber would need to go down by about 10% a month fairly quickly in order to be worth the wait of saving the extra money. And even then, it's a gamble at best if that's going to happen, and judging at the current rate, it's not looking so good. For example, one week after he posted the video, lumber prices didn't only go down; they went up another 33%, and now they're expected to go up even more due to worsening supply chain issues.

It's almost kind of like a buy the dip scenario, where as soon as lumber prices fell, everyone else waiting on the sidelines rushed to buy in, causing the price to go back up. But what makes this worse is that it's not just limited to lumber. The cost of everything is going up at the same time; there's a lack of truck drivers, shipping containers, and workers ready to make enough supply.

For example, the cost of PVC, drywall, copper pipe, and wiring is up 25 to 40% year over year, and even items like garage doors and insulation have gone up 10 to 25%, with wait times of 16 weeks just to receive the product. And to make matters worse, building costs across everything, on average, are up 20%.

So when you're building a house, you now have to account for every single item costing more than you expect and taking longer to get delivered. It's difficult because I know how hard The Stradman works for his money, and he's also naturally a saver, like myself. But this project, from the very beginning, was not about saving money or doing what was most cost-effective. It was about creating a dream garage and doing something for him that would be perfect, and that comes at the cost of repeatedly going over budget.

It could also never hurt to get a few other quotes to see if you find more reasonably priced materials. After all, every time I undertake my own project, I usually get about two to three bids, and most of the time, they come within about 25% of each other. At the end of the day, some people are going to come in way higher just because they know they could charge more, and that's your way to save extra money.

Now, I don't know the details of the company giving a quote here, but there's a saying that runs around contractors called "pricing the neighborhood." In general, it means that they'll quote a little bit more for the same job in a more expensive neighborhood just because those homeowners typically have a lot more disposable income. I'm not saying that's the case here, that this company is charging James more than they would with another client, but a young guy pulling up in really, really nice cars without a background in construction could be an easy upcharge.

And the only way to avoid that is by getting multiple quotes, perhaps through a middleman who handles those types of things for you. It's been crazy; every step along the way, all the contractors have worked—the concrete guys, the steel guys, the excavators—they're all familiar with the YouTube channel. A lot of them are super cool; they're actually fans of the channel. But in the back of my mind, I'm always like, "Wait, are they price gouging me right now because they think that I have money to burn?"

If I were in the situation, what I would probably end up doing is getting a few additional quotes, and then after about a week, I would bite the bullet and pay the extra cost. You're going to have the experience for the next time you build something, whenever that might be. Plus, like I mentioned, this is not a project that you started to save money, so any cost along the way is simply just the cost of making the dream become a reality.

So last question, then I have to know: what is the budget now, and when do you expect to be finished? "Oh man, I wish I knew the exact answers to that. So the budget, we're currently about $300,000 over, and that's just up to what we've done so far. So that's excavating, concrete, steel, and lumber. Obviously, there are so many more things involved with the house. I think we're at about $2.5 million; it will be originally—it was just over $2 million. I anticipate it will probably be about $2.7 to $2.8, if I had to guess, and I am praying that we will be done next summer."

Okay, so in the back of your mind, I would probably just prepare for $3 million and prepare by probably another year and a few months. Don't say that! That way, if that doesn't happen and anything comes in less, you're gonna be happy.

Oh, then finally, in terms of why The Stradman owes me money, here's a conversation that we had about a year ago when we made a lighthearted bet in terms of how long construction would take. "I am scheduled to break ground on my house in January, and then as soon as the house is done, they told me in 10 months. I would bet you $1,000, now $1,000 right now, 18 months. Look at this guy, I'm gonna say 12 months done. Shake on it."

And as of now, it looks like I kind of won the bet, but how about this? I would never actually take your money; we call it even as long as you destroy the like button for the YouTube algorithm.

With that said, you guys, thank you so much for watching, and I'll link to The Stradman's channel down below in the description for any of you who want to go and subscribe to him. I highly recommend it. Also, make sure to subscribe to this channel, feel free to add me on Instagram, and on my second channel, The Graham Stephan Show, because I’m posting there every day—not posting here. So feel free to enjoy. Make sure to get your free stock down below in the description. Thank you guys so much for watching, and until next time!