Real Estate

How to Become a Professional Home Builder – Part I

Over the years, many of our construction students have asked me relevant questions such as what size house I build; I am giving; where do i build it? Looking back, it’s easy for me to make these decisions now, but when I started building in 1975, they were trial and error situations. And my hindsight is very clear. It’s very easy for me to look back and see the things that I wish I had known when I started building. That is what you will learn in this article.

You will learn the pros and cons of being a speculative or spec builder (as opposed to a contract builder). If you’re unfamiliar with those terms, a spec builder is one who will select a site, choose a layout, build a house, and then sell it to a client. A contract builder is a builder you hire to build a house for you. By the way, spec building is how I suggest you start instead of building a house for someone else. I’ll explain why later.

I’ll start by showing you how to be one of the best spec builders in your area, even if you’ve never built a home before. I’ll expand on this information by discussing the points that are unique to spec build. Next, I will discuss the points that are unique to contract construction and the points that pertain to both contract construction and specifications.

A word of caution

I want to emphasize that when starting your construction business, you must separate your business from your personal life. At the beginning of the 70’s I dedicated myself to the sale of commercial real estate. I barely survived a major recession. Almost everything I owned was in my name and most of it was repossessed. If I had known then what I know now, I would have kept that great house, that Mercedes, and that plane.

In the construction industry there are many things that can happen to you, some of which you have no control over. According to the 2008 Annual Report from the National Center for State Courts, in 2007 Americans filed more than 90 million lawsuits, more than a third of which were civil cases. This does not include the volumes of legal disputes that were resolved before a lawsuit was filed. Based on the myriad of legal disputes that arise, in and out of court, it could be argued that most Americans run the risk of being involved in a legal dispute at some point in their lives; for many people, more than once. This is especially true for those who work in professions with high vulnerability to judgment, such as doctors, dentists and, yes, especially builders! You should invest in hiring professionals to help you protect your assets. It is easier than you think. This is one time when you can’t procrastinate. I can tell you some great horror stories, but I don’t want to scare you so early in the game. However, don’t live in fear of what might happen. You only lose if you don’t play.

I. Speculative building

A. How to be one of the best spec builders in your area

Before you buy a lot, before you buy any house plan, the first thing I want you to do is put together your successful team. I call this the Henry Ford philosophy. If you read about Henry Ford, you know that some people consider him illiterate. He once sued a Chicago newspaper that wrote an article claiming he was illiterate. In the lawsuit, Henry Ford emphasized that he didn’t need to know everything about everything because he hired experts to help him with everything he wanted to do. This left his mind free and clear to do all the things that he really knew how to do. Well, I’ve learned from that philosophy myself over the years. I realize that there is not enough time in this life to do everything. I now hire experts to help me make decisions, and they have been a positive factor in my success in home construction.

Your success team should include the following:

1. Real estate agent

2. Landscape architect

3. Artist / Architect

4. Kitchen and bathroom designer

5. Interior designer

6. Lighting designer

I will talk about each of these team members in detail as we progress through the course. Do not worry. When you start out, you don’t need the best. These team members are more affordable than you might imagine.

B. Get your first loan

Let me tell you a story. And the further you get away from this story, the more difficult it will be to borrow money to begin with.

Suppose you have a paid job. If you are not employed but are self-employed, then you must have a high credit score or file tax returns for the last three years to qualify for the loan. If you are currently renting a house or apartment and want to build a house for yourself, you are a prime candidate to borrow money to build a house, for yourself. So, you get the money. You build a house. You put it on the market during construction. You sell it. Go to the bank. You borrow money under the same premise. You get the money. You build a house. Put it up for sale. Sell ​​it. Do it over and over again and pretty soon you walk into the bank and the banker looks at you and says, OMG, you should become a home builder. And you.

Now that’s the easiest way to start. Most of the builders I know got started in the industry this way. This method will also provide you with the least risk. Why? Because if you don’t sell the house, you will just move into it. In turn, this will make it easier for you to sell because a furnished home will typically sell faster than an unfurnished home. Eventually you will sell it and you can start the process again. The bad news is that it may be moving around a lot. I remember a couple who wanted to have a free and clean house. They used this method in five households, pouring their earnings into each household. His sixth house was built entirely with cash. They owned it free and clear and got out of the construction business. They simply wanted to do what it took to own their home free and clean.

The further you get away from the above scenario, the more difficult it will be to obtain the initial loan when you are just starting out.

For example, let’s say you currently own a home and want to borrow money to build another home for yourself. A banker will generally be negative. They tend to look at the downsides and might comment on something like this. “That sounds great, but you currently own a home. What are you going to do with your current home?” His answer is: “I will put it up for sale during the construction of this new house and then I will sell it.” The banker comments, “That sounds pretty good, but what if he doesn’t sell his current home?” The banker usually looks at the downside, that is, he is going to get stuck with two house payments. If you can show that you can afford two house payments, you may well get the money.

You should always have a successful conclusion to the story you tell the banker. Never look at the banker and say, “Well my gosh, I’m only borrowing 70% of the appraised value. If the bank had to repossess the property, the bank would make a bargain. The bank could sell the house and make a good return on your investment “. Never use this type of logic with a banker. Bankers don’t want to be in the homeowners business. Never hint or even think in your mind that this will happen.

If you are not in gainful employment or have a problem with your credit or are out of cash, your next best method is to find an investor who will do a joint venture on a project with you. I did this on many large projects when I didn’t have the finances to pay for it myself. What he usually did was structure the investment so that the joint venture partner contributed little or no money. Investors really like that! What he needed was his solid financial condition. Understand that there are many investors, such as doctors, who have huge financial statements but have very little cash. So if you can structure the investment so that it requires little or no cash, it becomes a relatively easy investment to sell. When I worked with a joint venture partner, after the investment was sold, the investor was reimbursed for the cash they had invested, plus a fair interest rate that was agreed upon in advance. All remaining earnings would be split 50% for me and 50% for the investor. Normally, in a situation like this, the investor would let me deduct the expenses out of pocket but, understandably, would not let me collect any salary.

You wouldn’t believe some of the crazy, crazy, and ridiculous, cash-intensive investments that I’ve seen these people invest money in. Many of them have the same stock market luck as me. These people should feel blessed that you have come into their lives with a viable real estate investment. I have found these people talking to friends, going to investment seminars, and running ads in the newspaper.

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