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building first house as a GC

gecko | Posted in Business on September 6, 2003 05:52am

Hi everyone.

 

I currently own my own small (one man) cabinet and furniture making business but have recently been thinking about building a house and than selling it.

 

  The primary reason for this is that I find cabinet making jobs go pretty fast and I have trouble figuring out where my next job is going to come from, and ultimately I want to be a custom home builder. The problem I’m finding is how to begin. If a client needs a house built, and I bid the job, I still have never built a house before, so I doubt I would get it. It’s a lot like the chicken and egg saga. Secondly, I have never been asked to bid a house job, and don’t know how to even find a house job to bid on.

 

  I have always wanted to build a house from the ground up, and I know that I can do it.

 

  As a cabinet maker I deal with homeowners a lot and constantly deal with them not making up their mind, changing their mind, or nickel and diming me to death. Building a house to be sold later leaves all of those decisions to me, which I would very much enjoy.

 

  Do I need to have good personal credit to get a loan from the bank for this or do I need to write up a good business plan that they will feel comfortable backing me on?

 

  I’m thinking about buying a property in a good location, having an architect draw up some good plans than selling it when it is complete for a profit. I don’t know very much at all about this process but am hoping to learn before I make a decision.

 

  How do you begin something like this? Should I work closely with a real estate agent? Who should I talk to first, the bank, the architect? I have searched and read many posts on here regarding this topic but have not been able to figure out how to begin, and also if this is a good idea why doesn’t everyone do it?

 

  I should mention I do have a fair amount of experience; I worked with a builder for a few years, and managed to pick up some valuable points.

 

  I’m a pretty young guy, and I’ve always heard older folks say that if they could do anything different they would take more risks to get ahead. i dont want to be one of them.

 

  Thanks to everyone for helping me out on this one. I know I have a lot of work to do before I can break ground, but I’m confident I’ve come to right place.

 

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Replies

  1. andybuildz | Sep 06, 2003 07:22pm | #1

    gecko,

            First of all I think if I were you, I'd start out doing some remodeling first....renovation work.

    Secondly, do you plan on being a GC or "the" builder?

    A strong suggestion would be to find a wreck in a good neighborhood and do all the necessay work and additions if it'd make you money.

    You might want to look at Boss Hogs thread, "Spec house from hell".

    Personally I've "almost" always done really well with my spec homes but that doesn't always go that way..I've also lost money when the economy shrunk about 15 years ago..lost twenty grand.Lotta forclosures in those few years which I eneded up making money from..with agents that needed them resurrected.

    My wife has been a real estate agent full time for about 20 years so that really does help.

    Yes, its important to hook up with a real good agent that you can "trust"!

    They can find off MLS (multiple listings) more thats available than you can in a heartbeat.

    Doesn't cost you a dime to use the agent to "buy" a house..just to sell one.

    When you buy just land, at least in NY state you can't get a mortgage. You need to buy a house to accomplish that.

    Also, the taxes on a "new" house are a lot more than a reno......something to consider.

    Sure, its romantically a dream to build new but in my opinion unless the situation is perfect financially.its unwise for a starter house.

    Anyway.good luck and have fun

    Be well

              andy

      You can "be" the universe, but you can't know it. You are the answer- but you can't know you know.

    http://CLIFFORDRENOVATIONS.COM

    1. xMikeSmith | Sep 06, 2003 07:57pm | #2

      couple things:

      i wouldn't use an architect to design your 1st spec house.. i'd find the land in a location that everyone wants to live in...

      then i'd pick a plan from a plan service that would be appropriate for that neighborhood..

      your goal is to be the cheapest house in the BEST neighborhood..

      use your realestate agent to help you select the house from the plans.. but  don't let them or your own ego build too much house.. keep your mantra in front..

       cheapest house in the best neighborhood

      also.. as a cabinet maker.. your tendency is going to go towards ovber building .. don't.. go thru a lot of spec houses on "open house " days... see what  you are up against.. they cut corners to keep the cost down... you can design good quality.. and modify your plan service plans accordingly..

       last , but really first..... you have to have a fall-back position.... the only one that works is: can i move into this house if it doesn't sell.. and sell my own house..

       you can easily get to the point where the construction loan interest and property taxes will eat you alive with an unsold house.. or an  unfinished house..

      the only thing that will bail you out would be moving in as "owner-occuppied"

      usually rents will not recoup your carrying expenses on a new house.. they will if you can hold the house for about 10 years.. but cash flow is your primary concern

      in short.. building a spec house is tough , make sure you have all of your bases coveredMike Smith   Rhode Island : Design / Build / Repair / Restore

      1. User avater
        gecko | Sep 06, 2003 09:00pm | #4

        Hi Mike

          Great advice. By cutting out the architect I think I could save a chunk of cash. I can also expect the plans from a plan book to be somewhat ‘tried and tested’ I’m sure.

         

          I agree that a small house in a great area is the way to go, and I would defiantly start out small, like 1000 square feet or so.

         

          As far as moving into it and selling my house goes, that can be done but would be the absolute last resort. I think I can get a private lender, or silent partner involved who would foot the bill at a low interest rate.

         

          I think the first step would be as Andy and you have mentioned to get a GOOD real-estate agent to help with the property and design choice.

         

          When I plan the cost of building should I budget out a certain % incase any problems arise?

        1. xMikeSmith | Sep 07, 2003 04:09am | #7

          by small, i meant small, not  tiny... you have to meet the needs of your market.. like two - three bedrooms and two baths , minimum.. even empty nesters need 2 BR's & 2 baths..

           but a good real estate can help with that.... i just didn't want you to get sucked into the McMansion dealMike Smith   Rhode Island : Design / Build / Repair / Restore

    2. User avater
      gecko | Sep 06, 2003 08:49pm | #3

      Hi Andy

       Thanks for the reply.

      My plan is to be the builder on this house, but the main reason for doing this is be a GC for clients in the future. But if a potential client asks for some sample houses etc. at this point I don’t have anything I’ve built from the ground up to show them as an example of what I can do.

       

        I have done some pretty extensive remodeling jobs in the past but those jobs have not led to anything new. I also own my own 1905 Victorian house that I have been fixing up for the last couple of years. I have absolutely no doubt that I can do this, but I don’t want to go in blind. I’m more concerned about the details I wouldn’t think of on my own, particularly on the business end of things.

      1. User avater
        JeffBuck | Sep 06, 2003 10:27pm | #5

        how well do you know the subs you'll need?

        JeffBuck Construction   Pittsburgh,PA

         Fine Carpentery.....While U Waite                  

        1. User avater
          gecko | Sep 06, 2003 11:12pm | #6

          I know at least one very competent sub for every trade involved. I've been stockpiling that type of information for some time now.

          1. User avater
            JeffBuck | Sep 07, 2003 04:42am | #8

            "know of"...

            or "know".

            The reason I ask ....I'm looking to be in your shoes in a coupla yrs. I'm in no hurry to get there fast. I'm just looking to increase the size of my remodels first.....

            get that working smooth ..then move to bigger and better(?) things.

            And I'd not be able to take on bigger remodels if I didn;t have a complete set of good subs...guys that I know and have worked around. Guys I know will be there for me.....work their schedule best they can to fit me in and get me done.

            From what little I know.....I'd say ya gotta have a great working relationship with the subs before you even start to think along those lines.

            Here's a thought a builder shared with me while we were talking about my situation....think about a good ..top of the line...modular.

            Less time equals less risk.

            Modulars don't tie up your money as long....to build ....

            He had another good thought ..when he sets a spec modular ...he just has the factory put in all their most requested finishes...

            They're most requested for a reason ....because they're popular with the buying public.

            He dresses his up just a bit to show better ....slight custom touches....but mostly goes plain. Like Mike cautions..he says to build for the "general public" ....not for yourself or your pride.

            JeffBuck Construction   Pittsburgh,PA

             Fine Carpentery.....While U Waite                  

          2. Handydan | Sep 07, 2003 11:44am | #9

            Hi Gecko,  A small warning here, the advice you get will be varied, and sometimes contradictory.  Keep an open mind, and spend some time thinking thru all that is said.  It all was true sometime, somewhere.  I have done a little remodeling, built one spec house, sold 'Real Estate for 8 years, and currently do repairs for mostly landlords.  The biggest problems you will have, in no particular order  Time- fast completion is needed to make money.  Fast sale is also needed to make money.  Interest- the enemy it keeps coming until the sale closes and can quickly make a big hole where you expected profit.  Marketing, you must build what the public wants in that area, for that price.

            A "GOOD" agent can help with a lot of this, but you must get along and communicate very well to make it go.  Ask questions of everybody, but you must listen to the advice for it to help.  If you could move in for two years, you get away from paying taxes on the profit, and that can be a big deal.  Guess what it will cost, what will your closing cost be, add for a years interest, and then see what the market in the area will bear.  Maybe it will make sense, but the business is tougher, and less profitable than many think it is, so be forewarned.  I think the fixers is a better thing, but you still must be very aware of costs, and all that can go wrong in a building, and you  still need the GOOD agent.  Have fun whatever you do.

          3. User avater
            bobl | Sep 08, 2003 01:45am | #10

            anyone jnow the url for Boss Hog's Spec House from Hell thread?

            surprised he hasn't postedbobl          Volo Non Voleo

          4. User avater
            gecko | Sep 08, 2003 02:04am | #11

            I've read it.

            Pretty scary stuff, but I think, (I hope) that his situation was a 'worst case'.

             I’ve been going over the archives for a while now rooting out any posts that have anything to do with this situation. I’m leaning toward just trying to put in reasonable bids for people looking to build new homes. Any Ideas how I can get names of people who are looking for contractors to bid on their job? I’m thinking about calling up all the architects I can find and introducing myself. I heard something about looking in the newspaper classified section for jobs to bid. Any feedback on that?

          5. xMikeSmith | Sep 08, 2003 02:23am | #12

            gecko.. you are what you eat...

             nah... wait, i mean...

            you are what others perceive you to be.. IE:

             you need a marketing plan.. you're starting to catch on to the first thing.. it's a better risk with OPM...

            now you have to figger how to get the OPM .. which is marketing  again.. try checking out a copy of Guerilla Marketing from your library..

            you have to change your business plan and build on your past experience... you have to make the transition from cabinet maker to home builder..

            BTW.. been there, done that.. there is more money  in remodeling.. houses have become commodities.. so maybe you want to rethink what you wanna be when you grow up... me.. i finally decided i wanted to be a remodeler...and i don't never wanna grow up , neither

            Mike Smith   Rhode Island : Design / Build / Repair / Restore

          6. User avater
            JeffBuck | Sep 09, 2003 02:30am | #13

            i wanna be like "Mike".....

            JeffBuck Construction   Pittsburgh,PA

             Fine Carpentery.....While U Waite                  

          7. woodguy99 | Sep 09, 2003 03:45am | #14

            I wanna be like Mike too...

            Wait, I am Mike.

            I mean like the other Mike

            and remodel houses

          8. ponytl | Sep 09, 2003 06:30am | #15

            first thing you need to learn.... and took me awhile...(for about 10 yrs i basicly did everything out of pocket and only bought stuff that i could get the owner to carry the notes.....)

            learn how to deal with your bank... make it personal you need to be on a first name basis with em... they need to know you...  like i said took me 10 years...  and i was do'n ok... but being able to call at 9am  and sign papers by noon for a loan without putting up anything so you can jump on a deal, will make you... it didn't happen overnite... you need a good cpa and you need a current personal statement... remember that you are in fact a customer of the bank.... they are there to lend you money .... but you have to make it as risk free to them as you can...  do all your business at one bank... make all your loan payments auto withdrawal... always do what you say and when... and dance with the one that brung ya

            I'd go with what others have said here... buy a junker in a good area and fix it up... if you can find.... and there are many in my area... look around colleges... look for a house on a double lot that you could fix the house and divide off the lot... you'd learn a ton doing the paperwork and you'd have a lot to build an infill spec house on...

            all that being said... i like commerical stuff.. but i'm building the first apts i've done in years only because it's an old warehouse to 19 loft apts, on the mississippi river and one small unit will be for me (16,000sf) and my wife still says she's not move'n... build it and she will come?

            just my 2cents.... oh yeah i still work 10-14hrs days and come home more dirty than anyone on my jobs... do what you know

            pony

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