Replies

1. 
   Joe_Hennessey | Aug 25, 2001 01:45am | #1

   *
   Will you be able to do anything BUT build his lots?
   Just curious, no ideas what kinda finances either one of you has. How much do you need a year? How much do you make a year now? How will he react if you make more than he does? Or more than he thinks you should? Somehow the guy with the money always seems to end up thinking YOU are making too much....even though you are also making him money. I don't know why, but it happens. Golden Gooseitis I guess. Joe H

1. 
   Jim_Walters | Aug 25, 2001 06:14pm | #2

   *It sounds (to me) like the developer wants to sit back and act as a financier (limited partner)while you do all the work. That's fine cause he'll make his money from the development stage of the project. I would build the houses the same as any where else, figuring in O&P on each one and give him a backer fee percentage per unit....... and cost the house to cover it. What I wouldn't do is allow him to use the promise of mucho work to cut my throat.

1. 
   Luka_ | Aug 25, 2001 08:02pm | #3

   *If yer asking what would I charge him, I'd charge him a million bucks per house.If yer asking what should you charge him. Charge him the going rate. Decide if you want to be in the upper or lower range of that rate, and go for it. But like the others have stated, make sure, going in, that your butt is covered. Make sure that you have it in writing that you make 'x' amount, no matter what. Don't agree to any 'conditions'. Treat it, (them), like you would any other house.

1. 
   Steve_Hunt10 | Aug 25, 2001 11:43pm | #4

   *What I'm trying to figure out is 'the going rate'. I know what I expect to make on a spec house with my capital that can only build a few houses a year. In your area, is the going rate 4 - 6 % of construction costs or what. I'm building in southern Ontario and nobody that I know has done anything similar

1. 
   Luka_ | Aug 25, 2001 11:44pm | #5

   *BTW : As I said, treat them like any other house. Treat each house as if it is the only/last one you'll do. Don't agree to some sort of lower price because of 'bulk quantity'. You may do a lot of the houses, but each house is going to be sold to an individual. There will be problems with some, and not with others. Your 'developer' is going to put the blame on the builder, you, for any problems. Your crystal ball doesn't work any better than mine does. You can't see circumstances down the road. You may end up being cut off from building any more houses, and have some huge bill for problems that were not really your fault, and because you gave a discount, you now do not have enough money to pay for the problems.It is your neck on the line. Your business reputation. Your wallet. Don't rely on promises.

2. 
   Jason | Aug 26, 2001 12:17am | #6

   *I think you probably have a lot of considerations here. 125 houses in three years? You're talking about one house every two weeks completed, right? Now, I don't know that much about developments, but I guess my inital reaction would be to charge more, and I'd want a lot more information, up front, in writing. What is the level of quality, detail, etc. I'd also think that all of a sudden, you ain't going to be swinging a hammer, you're going to be management; you're going to need staff, you're going to need suppliers, and most importantly, you're going to need subs. Lots of them. Can your current subs meet the demand? I guess I'd also be asking a lot of questions about sales; what kind of advertising budget and marketing plan will they provide, what kind of staff, etc. Sounds like a good deal, but only if the scales are equally weighted on both ends.

3. 
   Joe_Hennessey | Aug 26, 2001 01:42am | #7

   *Steve, from your second post it looks like you are contemplating going from a small business building a few (two, three?) houses a year to building one a week.Who is going to answer your phone? How big an office staff do you have now? Probably zero....you will need to hire one to answer the phone and garble messages and promise that YOU will take care of the impossible as soon as you get back from where ever you went to see about getting the whatever that should have been on site two weeks ago. What's the going rate for doing a full time job that has nothing to do with building houses? YOU will NOT be building anything, not with a business this size going.Is that what you want to do for the next couple years? I don't care what the going rate is, if it isn't what you want to do with your life it isn't enough. Joe H

4. 
   blue_eyed_devil_ | Aug 26, 2001 04:29pm | #8

   *SteveH, the flavor of the previous responses seem to be somewhat negative. Don't look at this offer as anything other than a legitimate business proposition.One of the most important ingrediants to a successful negotiation is this. Always make the other guy say his number first.This developer is probably legitimate. He has the ability to develop land, but probably doesn't want the intensive involvement of building 125 homes. Even if there is a poetential profit of 40 to 50k per house, he's not interested because he an make more by developing another parcel somewhere else. He makes his money by selling the lots.You'll probably have the luxury of being an exclusive builder in there. If you have a good product, and can deliver the goods, then jump on this and then be prepared to do it again, and again, and again...This is a win-win proposition. Don't treat the offer with suspicion as others suggest. The developer wouldn't offer you the chance unless he thought you could deliver the goods. He's a lot seller, your a house seller. This is a typical business relationship.Good luck.blue

5. 
   Dave_Richeson | Aug 26, 2001 05:12pm | #9

   *Blue;"He is a lot seller, you are a home seller", say a lot. Single builder developements of this size scare the poop out of me.Will he only sell lots if Steve is the builder under contract?As others have said, there needs to be good solid language on paper,before he starts.I did not get that 25 years ago with a "high roller" deveoper. He sold lots and suggested his builder, me, and our selection of plans. When a buyer balked, he sold anyway. My "exclusive builders" clause was a farce. I trusted him because I had done a couple of contract homes for him and he was great. He was still good enough to let me off the hook when nearly all of the lots were sold. We built only 16 of 75 houses. Things weren't all that bad. My partener and I made some money, and he made a lot of money. I also learned some valuable lessons about business, partenerships, and trying to run several crews at one time.Steve, only you know if you are capable of a project of this scope. I wish this forum had been around in the mid seventies. Maybe I would have stayed in residential building instead of going to commercial, working for "the other guy".Best of luck.Dave

6. 
   Mike_Willms | Aug 27, 2001 05:27am | #10

   *I think what's not being said is if he wants you to be the builder, or if he wants you to manage his building company.. Make sense? If he's financing things, I would assume that he wants financial control, and would have you General the building end of it for x% per home. Meanwhile, he gets all the bills and writes all the cheques. You're basically just subbing the GC part of things. At least, that's how I would do it.

2. 
   Steve_Hunt10 | Aug 27, 2001 05:27am | #11

   *
   I have a developer who owns approx. 125 lots and wants me (a small builder) to build 125 houses over the next 2-3 years. He is supplying capital to build with but wants me in charge of building and selling. Any suggestions what to charge him. I was thinking of a base to cover costs plus a percentage of profit per house or a percentage of construction costs. I would appreciate any input.