I’ve been in the buissness for about 18 years, Self employed for about 6 years I’ve done most job’s under $15,000 some bigger and two house start to turn key. The house’s I did, did not go through a bank.
I just signed a contract for a house and the mortage company has the first draw after foundation. Can anyone tell me if this is a normal draw schedule, and if it is how do I get the foundation in with no money.
Replies
Foundation is the first draw (most of the time)and must physically be inspected and approved before the bank will release the draw. They only give you money on the finished product........your framing draw after completion/inspection etc. That's just the way it is.
The problem for a small timer is in getting the up front money to start. If you have the money in a bank you just support yourself......if not you need to get creative. The last house I built, the homeowner gave me twenty thousand up front. That was enough to pay my way, (subs ect.) until the draw came. I never receive the bulk of my profit until the last draw after completion. Until that time your taking care of others.
A word of caution......a lot of people who are getting homes built these days know this and are signing off without a hitch on all draws except the last one..... then they start chiseling.....arguing change orders, even if signed....everything else they can think of cause they know they've got you on a string. Not always, some people are great through the whole project, but the nasty few can quickly give you an ulcer.
It is ashame but what you said is correct I have been building houses quite awhile now and just recently had my ass handed to me by a " I'm a single mom with two kids to take care of" kinda women, I felt bad for her hook line and sinker turns out she is the most cunniving, manipulative person I have ever met. No doubt in my mind she will always be single.
I used to run into this alot. Here's my approach, depending on the customer (the one's that I don't know).
The bank holds the money back on their house, not mine. I ask them for a deposit to cover that startup cost. The last truck I bought ($25,000) I had to put $2000 earnest money for the order. That's 8 percent. I didn't complain, and neither would a homeowner buying a car. Same logic: a $400,000 home, 8 percent (way higher than I ever ask for), $32000.00 deposit. And they actually get to see work being ddone right away.
Banks don't build buildings, and I don't lend money.
Good luck,
Nate
It's called "working capital" it's one of the hardest working tools in your toolbox arsenal. I don't lend money either, but I know I need working capital to get jobs done(or started)
Besides, by the time you clear the lot, dig, and do the foundation you should not owe any mone. You have terms of 30 days with most subs, and the excavator is the only one who has to wait more than a few weeks. Mine is lucky to get his bill out in 2 weeks. We get 10% on the foundation, 30% frame, 30% drywalled, 15% trimmed, 15% move in.
By the time you get to the move-in, you keep the customer out(don't give them keys to come and go as they please, if they want in, they call the office and get a foreman to let them in and lock it when they leave, and shadow them the whole time). Make them want the house more than you want to turn it over. They sign-off pretty quick.
we don't build a lot of houses.. but our contracts are often bank financed..say$150K... and when we do build houses , we have the same deal.. we tell the homeowner that banks want to do 3 draws.. we want 10.. we get a binder of about 2%..
and we get a start deposit of about 10%.. then we set up a payment scedule for the owner and expect them to work it out with their bank.. if it means more inspection fees.. that's to be expected...
but we work on cashflow.. and 3 payments is not a flow.. it's a bottleneck...Mike Smith
Rhode Island : Design / Build / Repair / Restore
Well said, Mike. One by one we can start to dig out of the crap our industry is in. If I'm not building spec where I have all the control, it's their money I'm working with, not mine. On the other hand, if we could get everyone else to do it the way they want us to, then it would get real interesting.
Nathan
What kind of letters or guarantees do you guys get from the client's banks to prove they will lend money for the duration of the project?
I built the last house T&M. At the drywall stage, the bank cut the owners off, because they had overspent their loan. This created a scheduling mess for me. But earlier, I had been advised that the bank was good for the whole ride.
Mad Dog
Mike,
I agree with what you have said. We generally get 8-10% on deposit. In NY state our contract has a waiver the customer must sign for the state requirement of holding all deposits in an escrow account. Our draw schedule is normally five draws but can be more. We normally would require a copy of the customer's motgage commitment letter. If possible, I try to direct the customer to a bank that we are used to dealing with. That way they are familiar with our setup and us with theirs. Talking to the bank officials upfront too so everyone knows whats what helps. I try to avoid providing construction financing if possible, but if neccesary, we can do this through a private money lender we know. They do require the customer to turn title of land over to them through construction, and charge upfront fees, draw interest etc. which is all passed on to customer.
"Bish"