Over the years, many of our student builders have asked relevant questions, such as what size house should 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, these were trial and error situations. And my hindsight is very clear. It’s very easy for me to look back and see things I wish I had known when I started building. That is what you are going to learn in this article.
You will learn the pros and cons of being a spec or spec maker (as opposed to a contract maker). If you’re not familiar with those terms, a spec builder is one who will select a site, choose a design, 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, I suggest you start with spec build 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 house before. I will expand on this information by discussing points that are unique to spec building. Below I will discuss the points that are unique to contract construction and the points that are relevant to both spec and contract construction.
A word of caution
I want to emphasize that when starting your construction business, you must separate your business from your personal life. In the early 1970’s I was in commercial real estate sales. I barely survived a big 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 big 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 of 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 sheer number of legal disputes that arise, in and out of court, most Americans are arguably at risk of being involved in a legal dispute at some point in their lives, for many people, more than once. time. This is especially true for those who work in professions with high demand vulnerability, such as doctors, dentists, and yes, especially builders! You should invest in hiring professionals to help you protect your assets. It’s easier than you may realize. This is one time 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. Anyway, 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 house plans, the first thing I want you to do is put together your success team. I call this the philosophy of Henry Ford. If you read about Henry Ford, you will know that some people considered him illiterate. He once sued a Chicago newspaper that he wrote an article in which he claimed 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 he really knew how to do. Well, I’ve learned 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 it has been a positive factor in my success building houses.
Your success kit should include the following:
1. Real estate agent
2. Landscape Architect
3.Artist/Architect
4. Designer kitchen/bathroom
5. Interior designer
6. Lighting Designer
I will discuss each of these team members in detail as we go through the course. Don’t worry. When you start, you don’t need the best. These team members are more affordable than you can imagine.
B. How to get your first loan
Let me tell you a story. And the further you get from this story, the harder it is to borrow money to start with.
Suppose you have a paid job. If you are not employed but self-employed, you must have a high credit score or file tax returns from the last three years to qualify for the loan. If you currently rent a house or apartment and want to build a house for yourself, you are an ideal candidate to borrow money to build a house for yourself. So, you get the money. You build a home. You put it on the market during construction. You sell it. You go to the bank. You borrow money under the same premise. You get the money. You build a home. Put it up for sale. sell it. Do it over and over and pretty soon you walk into the bank and the banker looks at you and says, my God, you should become a home builder. And you.
Now, that’s the easiest way to start. Most builders I know started out in the industry this way. This method will also provide you with the least risk. Why? Because if he doesn’t sell the house, he’ll just move into it. In turn, this will make it easier for you to sell because a furnished house will usually sell faster than an unfurnished house. You will eventually sell it and you can start the process all over again. The bad news is that you may be moving around a lot. I remember a couple who wanted to own a free and clean house. They used this method on five houses, reinvesting their profits at each house. His sixth house was built entirely with cash. They were free and clean owners and got out of the construction business. They simply wanted to do what was necessary to own their free and clean house.
The further away from the scenario above, the more difficult it will be to get the initial loan when you are just starting out.
For example, suppose 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 down and might comment something like this. “That sounds great, but you currently own a house. What are you going to do with your current house?” His response is, “I’ll put it up for sale during the construction of this new house and then I’ll sell it.” The banker comments, “That sounds pretty good, but what if you don’t sell your current house?” The banker usually sees the negative side, that is, you will have to pay two payments on the house. If he can show that he can afford two house payments, it is very possible that he will get the money.
You always have to have a successful conclusion to your story that you tell the banker. Never look at the banker and say, “Well, my God, I’m only borrowing 70% of the appraised value. If the bank had to repossess the house, the bank would have a bargain. The bank could sell the house and make a good return on your investment.” Never use this kind of logic with a banker. Bankers don’t want to be in the homeowners business. Never hint or think in your mind that this will happen.
If you’re not gainfully employed or have a credit problem or are short of cash, your next best approach is to find an investor to venture into a project with you. I’ve done this on many large projects when I didn’t have the finances to pay for it myself. What he normally did was structure the investment so that the joint venture partner would put up little or no money. Investors really like that! What he needed was his solid financial statement. Understand that there are many investors, such as doctors, who have tremendous financial statements but have very little cash. So if you can structure the investment to require little or no cash, it becomes a relatively easy investment to sell. When I worked with a joint venture partner, after selling the investment, the investor would receive a refund of the cash he had invested, plus a fair interest rate agreed up front. All remaining profits would be split 50% to me and 50% to the investor. Normally, in a situation like this, the investor would let me deduct any out-of-pocket expenses but, understandably, wouldn’t let me take any salary.
You wouldn’t believe some of the wild, crazy, ridiculous investments that require huge amounts of cash that I’ve seen these people put money into. Many of them have the same luck in the stock market that I have. 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, attending investment seminars, and placing ads in the newspaper.