Construction business question

[Armen9]

One of my friends offering me to get in construction business.

We invest 250K in equipment ($125K me, $125K him)

And start working. It's construction jobs based mainly on 1 major machine, our team will have 5 workers with most skillful working on that machine.

All the jobs will be given to us by his old friend who is in that business for 15+ years for 10% commission.

He showed me the contracts his friend is giving to other people he is working with - and that's big numbers - 200K-$600K jobs (of course there are big costs for supplies, workers, etc. but still)

I know nothing about construction, he knows something(and very hardworking guy), and i am trying to understand what value are we contributing? What's our competitive edge and how big it is?

As far as i see the situation our edge is the connection with this old friend.

Also i have access for relatively cheap skillful workers who just come to USA from our native country, their English is not best - but they are knowledgeable, experienced and hardworking.

So if this old friend lasts in the business and we gather good team, that $125K can be good investment.

If something does not work out, we always can sell the inventory for 60-70% of cost (we are buying used)

So i have the feeling that the risk/reward ratio is good on that deal. But would like your advice.

p.s. lots of people say that construction is not fastlane, but it can be relatively passive income in that situation.

 

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[CostChisel]

I own a commercial construction company... have been fairly successful. $250k in equipment... what equipment are you talking about?

Also, what type of construction... roofing, waterproofing, concrete, excavation, etc

 

[AgainstAllOdds]

Can you line up another client? Building a business around one client is a ton of risk. Around two clients, and those numbers, you eliminate a lot of that risk.

 

[iizu]

Can you rent the equipment?
Make the first gig with rented equipment to get a reference and then start instantly looking for your own clients.

Can you ask you friend to negotiate a downpayment from the customer in the first deal.

TBH I don't really know nothing about construction business. Just try to give some ideas. Altough I find construction really interesting.

 

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[ArcherCarmic]

...lots of people say that construction is not fastlane, but it can be relatively passive income in that situation.

It seems to be that Fastlane is about recognizing opportunity and acting on it. Just need to establish need.

I know nothing about construction, he knows something(and very hardworking guy), and i am trying to understand what value are we contributing? What's our competitive edge and how big it is?

You mentioned that you have access to cheap skilled workers, which to me is an immediate advantage.

You say that your connection is contracting with 200k-600k jobs, how much (on average) can you expect to make per job after the 10% referral fee? How many jobs can you reasonably expect to complete in the next 12 months? Trying to get an idea of how long it would take to pay your initial investment on the machinery.

If time-to-complete a project with the above mentioned connection leaves you and your team with expected down time, you could pick up the yellow pages/investigate local trade groups/do online research and start calling construction companies in your area asking if they'd be interested working together. Make it enticing, and if your competitive advantage is your price, use it to get some new business.

 

[timmy]

One of my friends offering me to get in construction business.

We invest 250K in equipment ($125K me, $125K him)

And start working. It's construction jobs based mainly on 1 major machine, our team will have 5 workers with most skillful working on that machine.

All the jobs will be given to us by his old friend who is in that business for 15+ years for 10% commission.

He showed me the contracts his friend is giving to other people he is working with - and that's big numbers - 200K-$600K jobs (of course there are big costs for supplies, workers, etc. but still)

I know nothing about construction, he knows something(and very hardworking guy), and i am trying to understand what value are we contributing? What's our competitive edge and how big it is?

As far as i see the situation our edge is the connection with this old friend.

Also i have access for relatively cheap skillful workers who just come to USA from our native country, their English is not best - but they are knowledgeable, experienced and hardworking.

So if this old friend lasts in the business and we gather good team, that $125K can be good investment.

If something does not work out, we always can sell the inventory for 60-70% of cost (we are buying used)

So i have the feeling that the risk/reward ratio is good on that deal. But would like your advice.

p.s. lots of people say that construction is not fastlane, but it can be relatively passive income in that situation.

Hi
I have spent most of my life in this sector. As mentioned before that's serious investment for what would appear specialised work. I can only go by whatbyou have already disclosed so intrepretation maybbe flawed.To get such lucrative contracts usually entails other off the sheet pay clauses.(;backhanders) Staff may have to be trained first and become certified. Insurance may be a huge expense, depending on the element of danger /risk associated.

.IMO you should go for it, but only if you have 250K . It would become passive immediately in this instance.

Hope that don't sound too harsh. It was not ment to be.

 

[ZCP]

Licenses? Insurance? Location?
Who is doing the quotes? Who is running the jobsites?
Lot of money to be made and lost in construction!

 

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[Balkins]

Not to be negative but you asked for critical opinions. More info is needed.

Couple of things stick out immediately

-depending on 1 customer?
-lots of upfront $
-biz you know little about
-getting 60% back on used equipment?
-who are your competitors?
-is someone rushing you to drop $ into this venture?

Why not go into sales in that particular area and learn the biz before dropping 6 figs on something you know little about?

Yes your buddy's "old friend" is the "source" for biz, but is that really enough to make you feel comfortable?

Sales in Construction is not a bad way to go. Little risk and big upside if you know how to structure a deal and have "honorable" partners.


More info is needed.

 

[Jon L]

I have to second the 'rent the equipment' idea. Dumping $250k on used equipment where you already expect to only get back 60% when you sell is a bad idea. You'd take a loss of $100K.

Even if you make little profit because you rented the equipment, you can test the waters to see how good the business is. Once you've convinced yourself that you will actually make money, then you can dump $250k into equipment, and keep the money you'd otherwise spend renting it.

 

[Blair]

As someone who has owned a civil construction business and then sold it to focus on property development I agree completely with the rent it advice. Rent the machinery first, do a few contracts, get an idea of actual profit made from the jobs and then make the decision if purchasing the gear is for you. Construction is a hard game. Many do well but many do not.

 

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[Balkins]

Hmm...i was looking forward to hearing from OP. But he disappeared ? ? ?