Hi all-
I’ve lurked on and off for some time on this forum – mostly a few years back during the owner-build of my first house.
I’ve recently sold that house (by myself, for 1% under asking price and in 6 weeks… tough market? not in my neighborhood!) and we did pretty well for ourselves.
Ourselves being… me, my wife and our two boys – 21 months and 7 weeks! We sold the house to take an early cash-out on that sweat equity (blood sweat and tears equity! “It’s not carpentry until somebody bleeds..”) so that my wife could stay home from work (she was a high school Spanish teacher) once #2 came along.
We’re now building house #2 (third owned house in our five years of marriage… bought a duplex when first married, did a few renovations.. mostly cosmetic.. sold it for a bundle, owner-built, sold that for a nice chunk…) mostly because of a fortuitous conversation between myself and a coworker who mentioned he was building.. turns out his wife’s Uncle is a builder and is doing the job for his costs only… and he was thinking about building a second house in the neighborhood but didn’t feel like throwing up a spec in this market. Well… what kind of deal would he give us for a house? A very good one.. and so far, so good with the process… it’s nice to be the customer and although I’m itching to do some work on the house (I hung all the doors, did all interior finish carpentry, flooring, tiling and painting… well, the wife painted… and also did the stairs (yikes!) on the last house… oh, and built a big monster of a deck too…) the wife has forbidden me from picking up tools until we move in (another deck is on the way… and maybe a nice shed? But I digress.). The builder is a good egg and I trust him.. heck, I think he’s a great guy. He does what I ask and he also brings his own ideas to the table.
Furthermore, he has been generally impressed with my knowledge about the building process – work flow, decisions, materials, techniques, etc. In fact, sometimes he probably wishes I haven’t been an avid reader of Fine Homebuilding for the past 4 years plus a lurker/participant of this and other building boards. (trade/consumer). When we decided to owner-build I worked hard to educate myself about building and I think I’ve gained some knowledge along the way. One day while discussing some goings-on at my job (more on that in a second) with the builder he flat out said “you should build houses. you know enough.. you could do it.”
Which is something I had been considering for a little while.
I presently have a well paying (six figure… just barely) marketing job for a growing company. I’m in a more senior position there as would befit my years of experience and my MBA in marketing. However, there are some changes afoot at the company that I’m not particularly thrilled with and I’m also getting closer to 40 (37 today!) and have begun to think about the “next phase” of my life. For additional context, both of my brothers are in the trades – one owns a very high end alarm company in Chicago, the other just recently sold his Spray Foam business but consults with start ups in that trade. My wife’s mother’s father was a builder and all three of her uncles are in various parts of the construction industry as well. So, there’s some family history there.
My current plan is to try and build a spec house for fun/profit (hopefully a little of both!) after we move into the new house and get settled. I think the market is bottoming out and we’ll see flat to growing housing activity in a year or so – the unemployment rate is very good and people’s incomes are still growing… it wont’ be a boom market but it should normalize. At least that’s what my crystal ball tells me.
If I can sell that spec house for a profit… roll the proceeds into another. Sell that one for positive money… one more. That should be three years from now and I’ll be 40 with a little capital in the bank and also a relatively healthy financial picture otherwise (no debt beyond current mortgage).
I’ve always wanted to own my own company for all the various reasons… I just never thought it would be in the trades. I think from a business perspective I am well armed to run one (manage multi-million dollar budgets, vendors, employees, etc.) although of course I need to learn even more about the building trade specifically. Of course I think I could market the heck out of my business… I better be able to!
I understand the labor issues in the market and also know that I’ll be diving into a pool crowded with a diverse group of competitors… all of which likely have much more construction experience than me. But I’m not afraid to compete.
So – how do I educate myself during this transition time? Do I try and find a mentor in the area (builder that I respect) and see if I can trade value with him? (i.e. I help him on the marketing/advertising side, he helps me with wisdom/learning/contacts/etc. on the building side) Are there classes I can take? A license or certification I can get? I know the NAHB offers some classes.. I need to look into those. Other ideas?
Lastly, I think the biggest hurdle to making this switch is the opportunity cost – I already make a pretty good salary. I may not get total job satisfaction from what I’m doing but it sure pays the bills.
What kind of sales volume would I need to do to earn comparable money? Do people generally make more margin on spec houses or on custom? I’ve tried estimating it some on a gross margin basis (i.e. what is a typical builder’s fee) but without any idea on overheads it’s a pure guessing game. I have no idea what liability insurance costs.. not to mention accountants, etc., that I might need.
Okay, that was an excessively long way to ask the question…
If a normal guy wants to become a builder… how should he do it?
Thanks in advance for any insight/suggestions/encouragement/warning that you can provide.
Pete = aka “Granite Stater”
Replies
Granite Stater,
Well you ask a question which only you will really have an answer for.
I sell to hundreds of builders so I know somewhat of the process involved and know in general who is going to make it and who isn't..
Before I supply that answer, I'd like to congradulate you on your apparent success thus far..
I think if you are going to do as you intend, the build for yourself method is the smartest. If you don't sell it you still have a place to live. Sooner or later you can sell it and reap the tax benefits of ownership compared to spec building..
Those who are successful in this industry seem to be friendly and open.. willing to share time and experiance with others . They can't be afraid of really hard work. or you'll find yourself hiring others to do things that you properly should do.. They develope relationships with others in the trade so that prices are friendly and the work is performed timely..
I agree with Frenchy. You've got a wife and 2 young kids. I assume your current job offers benefits such as retirement and insurance. Why would you make this change in your life at this point?
Scratch the building itch by building you and your family a new personal residence every 2 years. Tax free profit. Invest the profits on the sale into the new house. By about the 5th or 6th, if you don't keep increasing the size too much, you should have your personal residence owned free and clear. Use that time to learn more about trades and the building process. Sounds like your current builder might be willing to teach you a little. You can maybe act as an apprentice for him. In 10-12 years, you will still be under 50. Plenty of time at that point to reassess your life and see if you still feel like changing courses in life.
All this being said, only you know what your work/life situation is, so if building is the way to go for you, good luck.
Tracy
Hey Tracy-
Start the new career at 50?!?!?!
That's when I want to retire after striking it rich as a builder the next 10 years or so...
:)
Yes, the current gig isn't exactly shabby but then again... nothing ventured, nothing gained. That's why I'm thinking about doing the "baby steps" spec house 1-2-3 over the next few years to get my feet wet while still having the paying corporate gig.
Thanks Frenchy, appreciate the thoughts.
If by the "build for yourself" method means my wife has to move every two years (we've moved four times already in five years.. with a fifth on the way!) then NO....
I will be divorced!
I agree on your last sentence and I think that those traits make one succesful in many lines of work.
One of the reasons I want to do a spec now - when the market is down - is that I think I can get access to subs I wouldn't normally be able to work with in an up year because they'd be too busy working for larger, more established builders vs. the new kid on the block (or the one shot owner-builder...).
i.e. develop those relationships now and when things do pick up... I can still get them to answer the phone...
GraniteStater,
You raise a good point, women tend to ignore practical aspects in favor of emotional aspects. IN any case have a long and frank discussion with your wife. point out not only reasons to do it, but also reasons not to do it. Carefully list all the risks that you can think of and make sure she understands that these are just what you can think of, the unknown will always be there..
I'd go so far as to write everything out and give her a copy of it.. that won't protect you but at least it eliminates some ammunition she'll throw at you no matter what happens. Remember if she walks everything get's cut in half minus the cost of the lawyers!
She's got to be on-board or you won't be successful..
As to your do-it now. I like contrarians, they are the real risk takers and as such likely to win big while they are ahead of the curve.. You also get your pick of desperate contractors..
However, In my area there are still over 7000 unsold new houses listed, some of those have had three birthdays empty, the sales rate is around 5% for listed homes and down again last month..
Hey Frenchy-
Thanks for the words of wisdom.
Unsold houses around Lake Minnetonka?
that's absurd!
Petey
MBA - Carlson School of Management, University of Minnesota 1999.
Yeah, I was a Min-duh-soda-nn for a few years...
"you should build houses. you know enough.. you could do it."
[Good]
(manage multi-million dollar budgets, vendors, employees, etc.)
[But have you ever developed one?]
What kind of sales volume would I need to do to earn comparable money?
$60K salary + $40K EOY Draw
$40K profit to owner = $40K Profit to business = $80K Net Profit
Net Profit of 5% is good, so around $1.6M to $2M Sales.
Do you want to be a carpenter with a business or a businessman with a hammer? A carpenter is gonna have to put in an additional 20 hours/week to run his business, while a businessman may find a few spare hours to swing a hammer.
A carpenters' good all around small crew can turn out 4-6 starter homes, or 3-5 McMansions, or 1-1.5 luxury homes per year. Working 60 hour weeks, with one 1 or 2 week vacation during snow season.
A good construction business can do 200-500 starters or McMansions or 3-6 luxury homes in the same time working 45 hour weeks and taking 2 or 3 two week vacations thru the year.
how do I educate myself during this transition time?
First find out what a Business Plan is used for by the businessman.
Right now, open the Business folder on the rightof this page, notice at the bottom of the resulting list the link "Next 50"? Start reading. For intensive reading, search the business folder for posts from Jerrald Hayes and Sonny Lycos.
Then go to JLC-Online here:
http://forums.jlconline.com/forums/forumdisplay.php?f=5
and here
http://www.jlconline.com/cgi-bin/jlconline.storefront/EN/UserTemplate/26
Find the NAHB Chart of Accounts and set up your own Excel based accounting system. This will be used as a reference during many of the planning stages and as a blueprint for whatever system you decide on. It doesn't have to really work(|:>)
Bring your wife on board ASAP, because you need to plan for a Capital Account with at least $100K in it, and that means cutting back for now.
SamT
"(manage multi-million dollar budgets, vendors, employees, etc.) [But have you ever developed one?]"
Oh sure. I've developed numerous budgets. It's a basic part of my job.
"What kind of sales volume would I need to do to earn comparable money? $60K salary + $40K EOY Draw $40K profit to owner = $40K Profit to business = $80K Net ProfitNet Profit of 5% is good, so around $1.6M to $2M Sales. "
Thanks - that's helpful. Around here, that's ~4 to 5 decent sized houses (2,000-2,200 sq. ft) per year. Or, three larger houses in the 3,000+ sqft range.
Do you want to be a carpenter with a business or a businessman with a hammer?
Definitely a businessman with a hammer. Might not pick up the hammer very often. Depends... on what would be on the plate at the momment and how a particular house is coming out cost wise vs. target. I would probably stick mostly to finish work and decks... I'd like to do more hands on framing but only from a contextual "fit the nuts and bolts together" learning opportunity vs. it being something to do regularly.
Thanks for the good business links. I am going to get a subscription to JLC and will wander over to their forum as well. I have started reading the threads here on the business section. I'll check out those planning documents too.
Wife and I have discussed at fair length... she's on board - biggest concern of course is leaving relative security of corporate gig (and the health insurance that comes with it). But that security is fleeting and to further my career I'd likely have to move the family to Connecticut or Massacusettes as there aren't many jobs like mine around here... much less the job that's the next step up for me career wise.
Lots of good questions. If you haven't read it yet, Gerstel's Builders Guide to Running a Successful Construction Company is a good start. It's slightly dated (1991) but has some good info. Currently, there is no GC license or registration required in NH, but it's in the works (HB 174-FN, and related HB-840), possibly as soon as 2008. There's classes, short courses, seminars on just about anything you want to learn, almost anywhere you look. You can get certified in just about anything but it's not a prerequisite. What area of the state are you located?
Thanks Henry... I'm off to Amazon to find a copy. 1991 huh? Probably has something about "how to use that new-fangled electronic mail"... ;)
I do know that NH doesn't require a license... didn't know that the requirement for one is forthcoming.
I've poked aroudn the NH chapter of the NAHB but their website kinda sucks and isn't clear about what kind of classes they offer. Also, it seems like you have to already be in the trade to join the NAHB... I have to give them a call to see what they can do for me."What area of the state are you located?"
I'm currently living with my wife's parents in Windham. We're building in Londonderry. How about you?
How are you making out? I'm in Mont Vernon by the way.