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I am an amateur builder looking to make a break from my full time aerospace job.
I have been able to finance projects for my own occupancy, one at a time, but how do I go about getting a $180k loan without a customer, especially when I already have a good sized house payment?
A rear addition provides a small-scale example of how to frame efficiently.
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Replies
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William,
First off, stay with the aerospace job. Funny how we all want what others havedo. I'd LOVE to be in your shoes, hell I even tried just being a janitor at Kennedy Space Center but couldn't get hired. I'd wash the Space Shuttle for minimum wage or work for peanuts to drive the crawler. I have a minor in astronomy but found out thats not the same as being an engineer. Why don't they tell you that in college?
Anyway, I digress...
I don't know how a business loan would work for the financing of a house but you may just have to do it as a second home loan? Thats a large chunk of change to do as a second home but if you have the connections with the bank, they may swing it? Do you really need $180k? Thats a large investment for a spec home but if your region can sell it, then I suppose its worth it?
You could always try to pre sell and then work from that. Thats easier financially but harder without actually "being" a custom home builder.
One of the subs I used for my house was able to secure a $100k loan and built a spec home with it. He said he made just enough money to be able to build another one. He only had a little profit in his pocket but figured if he made slightly more profit on each subsequent home, it would add up. Plus of course running his primary business so he has a constant income.
Sorry I don't have any direct answer, just what I've seen done before.
I am convinced if you can generate the money to build the first spec home, the others would follow a lot easier.
Mike
*William, Keep us posted on your progress. I used to work for one builder who worked at Ford motor company full time. I believe he financed his first few houses through construction loans. After awhile he was able to pay cash for the houses. We estimated he was making fifteen to twenty grand per house.And he has always kept three houses going full time. He eventualy retired from Ford and owns a half million dollar home in Florida and an exact replica of it here.(in Kentucky) On a side note. He was probably one of the most arrogant builders I have ever worked for. When he worked at Ford full time all his subs made sure they were done and gone by three in the afternoon when he got off work and would check on his houses. Now he goes to Florida for one week a month,and everyone makes sure to optimize that week. He gets away with it because he can cut a check as soon as you give him a bill and he stays loyal to his subs, and keeps steady work for them. But man is he a bear to put up with.
*Mike maybe we can get jobs drivng a zamboni. It wont pay much but it would be exciting work :)
*Generally, spec home builders either have a chunk to start with (e.g., Aunt Bettie died and left them the farm), or, and you'll pardon the expression, they take their huevos in hand, mortgage the farm to the hilt, and go from there. Business and construction loans are right now a losing proposition; the interest rates are way too high compared to simple home equity loans (in my area, the difference is something like 4.24% vs. 9%). It's good that you're looking at that cost, because if you go with a "safer" business loan, you lose money on your spec, whereas if you mortgage the house, well...you know what can happen. I'm sure it's done differently in different parts of the world, but around here, if you don't have the cash and credit to lay down upfront for this type of venture, it's another mortgage and prayer. Spec home building generally isn't for the faint of heart, ecspecially the first three or four.
*Ron, I'm all for being Zamboni operators! My wife just cringes anytime I see any kind of unique equipment as I feel the want and need to operate it at least once. Haven't driven a Zamboni yet so thats next on my list. My wife is just rolling her eyes as I write this.Mike
*Mike ,I know the feeling mine thinks Im crazy enough already.
*Being as I did this myself, I'll tell you what I did. May or may not work for you. First, we own the house we live in. Had the mortgage paid down to about $10,000 or so. We paid off all our credit cards and car loans so we had zero debt except for the mortgage. Then we had to have our house appraised, and had an "as built" appraisal on the spec house. We had to have enough income to qualify for the mortgage on the spec house if we ended up not being able to sell it. (Which has been the case)We had to have enough cash on hand and equity in our house to cover 20% of the value of both houses combined. Like some of the other guys said, it's not for the faint of heart. Lotsa risks. See the "how much can you make on a spec house" thread.
*William, My two cents, for what it's worth. Try a spec remodel first. You'll need 10 to 40k for a down (take a second or home equity line on your house) Then call all your credit card companys (you have 3 or 4 of them right?) and see if you can boost your limit to 10 or 20k each. If you can't you need a bigger 2nd on your house or a rich uncle. This should give you enough to do a decent remodel or to hang yourself (financially speaking). Good Luck, Roscoe
*William, if you haven't already, I'd recommend reading Rich Dad Poor Dad by Robert Kiyosaki. It helped me go from thinking like a poor tradesman to beginning to think more like a businessman and investor. One rule is to not make investments with credit card debt. You might as well go to Vegas if you want those kinds of interest rates. If you can put together a really solid plan that's guaranteed to make money you'll be able to find investors to put up the money at lower rates than a credit card would give you. If you can't put together a solid enough plan to find investors, do you really want that much money put on a risky bet?
*William, what part of the country are you in. How's the housing market. I suggest that you start looking at this in more of a commercial, business manner. You should not have to start this process by putting up your whole life as collateral. You have two things to prove to the bank. 1) That you have the ability to build a house. 2) That you can pay the loan back. You should not have to show income specifically for this purpose. the idea here is that you will never make payments on this house because it will sell. if the market in your area is in bad shape then dont build there. Remember make your presentation so professional that the bank will have to give you the loan. making it pro is not just wearing a suit and tie. (dont wear a suit and tie, let your abilities speak for themselves. real builders dont wear suits except at their kids weddings.) I suggest that you learn as much about the specifics in your area as you can. have a very detailed cost projection. Have a great plan, drawn by a local designer or architect, even if the original idea came from a book. I have been building specs and customs for 20 years now. I'm not wealthy at all, I have problems (trust me on this one), and the only other thing that i loved doing as much as this was flying Blackhawk helicopters in the Army. p s I do not have a military retirement.