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Let's Build a Spec House!

A detailed account of a Fastlane process...

Get Right

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With my new found freedom (see Anniversary post for background) my mind has been working overtime on something fun (and fastlane) to do. I evidently don't handle boredom well. So I started another business building a spec home(s). Since there isn't much real estate talk here I thought you might enjoy watching the roller coaster that has just begun. I'll try to give you the ups and downs the best I can. Feel free to repeat my process/ask questions/make suggestions, whatever you like.

The Market (research) - I was reading a housing report a few months back. The report showed our area to fall 8,000 housing units behind what was needed to sustain our area. Basically we were going to have a lot of people looking for houses that weren't there/built. I did some market research and sure enough the housing inventory was being depleted at a rapid pace. Another sign the report might be right was rapidly increasing housing prices. If this continues we should see a much higher demand for the next 3 years (estimated time to recover housing stock).

The Idea - Build a spec home(s) for the anticipated market.

The UVP - I've been paying attention to a certain "style" house that is built a few hours from here. Everybody ooo's and ahh's at them but nobody has brought them to my area. There's not an obvious reason they aren't here and I am very involved in the industry.

The Leverage - I'm an Architect by trade so I have quite a bit of leverage to use. The main ones are:

· Deep residential experience (design and construction)

· Ability to get deep product and sub-contractor discounts

· Huge rolodex of professionals I work with already (accountants, bankers, etc.)

· I've built 3 buildings myself before (none SFR)


CENTS - Hey, its the Fastlane Forum - you think I would forget that :)

· Need - Established by market research

· Entry - Not easy to put all the pieces together, high $, I own the land

· Control - I am the major shareholder

· Scale - I am only really limited by the ability to purchase lots at the correct price. I should be good up until about 30 spec homes.

· Time - Most of the work will be on the hands of others but I will participate heavily (because its fun). Future decreasing of my time should be possible due to the repetition I plan.


The Money - Building spec homes is very expensive. I will take on a few partners for start up money then leverage our credit/track record for a portfolio bank loan.


The Plan - I've seen people build a spec house or 2 before. One of the major problems I see is that they only build 1 at a time. This would take you FOREVER to make any significant money. Therefore I plan to build 30! But not so fast, I will have to stage them to make the whole process work. I will start with 3 houses (I am estimating a 5% cost savings just by building 3 at a time). I will then start additional ones as the first houses sell (this will make the bank happy and possibly increase the portfolio loan).


The Disaster Plan - Yeah, I still do those....so what happens if it doesn't work (ouch)..... I set up a system of partners in a manner that if we built 3 and none sold, we could each move into one. The main objective would not be achieved buuuut at least we would be financially safe and be able to maintain our bank love. Bonus - they will be pretty sweet spec homes.


Sooooo - let's build a spec home!
 
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Get Right

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As promised, I rented a mini excavator. Dug up all the stumps and finished clearing the site (picture below). It was below freezing and the wind was howling...

So guess who I got a call from today....the contractor :) He says "Wow man, you already finished the site work and pulled the permits". In a very polite manner I said to him "Hey, look. This house is getting built with or without you. I'd love to have you part of the team, but this is the pace I expect."

I hope he got the point. We will see how he delivers going forward.

PS - This particular bobcat is a blast to run :rockon:

BobcatE30.jpg
 

Get Right

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Hello Fastlaners! I've been super busy with the spec homes so sorry for the progress delay.

The last few months have been a little trying but I'm still in good spirits. I've had to fire sub contractors, ride heard on my primary contractor and deal with mistakes and delays that could have been avoided. Cool thing is, every time I have a problem I say "this would probably stop my competitors". I then proceed to kick the problem's butt and continue on. Thanks to @MJ DeMarco for explaining the Desert of Desertion. I watch his video on it from time to time. The Desert is real and it doesn't get much easier even though I am quite experienced at traveling it.

I've also learned more about premium pricing my products. By meeting (and golfing :) with much bigger developers I have learned that my products are under-priced. I think it is a mindset issue I worked on 2 years ago, revisiting. Once I corrected the pricing structure I "saw" what the other guys were seeing.

Good news - my houses are turning out pretty cool! Here are a few quick pictures of the progress.

-landscape.jpg

-landscape (1).jpg

As I mentioned before, I sold 2 of them. 2 more of them were listed today. I have 2 more lots getting cleared now. In addition to that, I have 2 more new lots in the purchase/ negotiation phase. That makes 8 total. If the new pricing works out, this would make it my most profitable year...ever... As promised in the beginning of the thread, I will start posting numbers and ways you guys can do this also. This assumes it all works as planned, ha!

I hope you guys are rocking your personal fastlane's. As always, let me know if I can help.
 
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Get Right

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So, my contractor has been dragging his feet for the last few weeks. We should have pilings going in the ground on the first lot but nothing so far.

The contractor hasn't done the following: Energy Reports, Truss Design, Sewer/Water/Gas Taps, site clearing etc. etc. I started getting upset about it at first. I then realized the contractor isn't going to control my destiny. This job is getting done with or without him. This is my dream.

So I figured out how to do all the above and lot more. I didn't ask permission or even tell him they were done (It will be funny when he figures it out). Here is a fun example - about 12 trees needed to get cut and removed for the house. So I fired up the chain saw and got to work:
20160120_121824.jpg


I have a bobcat, backhoe and chipper showing up tomorrow. Dumpsters, toilets and temp power next.

The lesson: Don't let anyone else control your future!
 

Get Right

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Updates please!!! :)
As requested, ha!

I was given the opportunity to speak at the Summit this year about the spec home business. I ran through the creation of the business (and many other not so great companies I started) and I think the group liked it. I really enjoyed showing what it took to get this business "right". Funny thing is, I think I learned more and left more inspired than anyone!

When I got back I pushed hard to get another house on the market. It was close already but needed a final push. We listed it Saturday and it sold in 12 hours! Talk about catering to a raving MARKET :)

I sent an e-mail out to my current investors and a few potential investors telling them I am ramping up production dramatically this year (thanks to the renewed energy from the Summit). If all goes well, I will have a total of 7 houses under construction in a few months.

Another interesting thing I find is that once you start stirring the MARKET good, other opportunities start springing up. I have almost daily requests for me to build houses/additions/etc. I haven't taken any due to the possibility of it breaking the TIME commandment....but it's there if I want it. I also get calls from sellers that know I buy land. That is nice because it takes some legwork out of the process for me....which also leads to better deals.

I passed my contractor exams so I've added a good bit of CONTROL back to the company. It will add a little to the bottom line also.

I'm still looking for the right multi-family situation to come around. The thought process is that it really doesn't take that much more effort to build 3 units than it does for 1. The profit however would be a good bit greater.

So, I'm really happy with this business right now. I have lots of time to do whatever I want. So far I have just ramped up my family and philanthropy time. I'll have to find something selfish to pursue at some point, ha!

As always ask anything you like!
 
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Get Right

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Update time! I've been cranking on the spec house for 3 weeks now. Accomplished:
  • Drawings finished
  • Soil borings finished
  • Contractor quotes finished
  • Realtor package ready
So here is where it gets interesting. The contractor pricing came in too high. Lowest qualified bid was $449k. Problem is, the real estate team doesn't like pricing the home over $475k. Assuming a full price sale...that would represent a $12k loss. That leaves me with 2 options:
  • Kill the deal and unload the lot
  • Find another way
And here is where most people give up. They would scrap the deal and go find another shiny object. Not me. To me - this says "Hey, another barrier to entry. There is some gold here to find".

So I took the contractor estimates and started looking for money. 2 areas stuck out. The framing labor was $39k and the contractor overhead was $47k. These are in line for our area buutt very high (for the service provided). Framing only takes 2 weeks and most contractors spend less than an hour a day on a residential job. So I am going to get my contractors license (not hard). I am also putting a framing crew together. This should flip the $ back from a $12k loss to a $65k profit. I repeated this process of analyzing the contractors estimates and have found a total of $125k savings. X3 houses = $375k. Not bad.

With this info, I started the selling process. I have a very interested party already. Meeting again in an hour to try and solidify.
 

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As a project manager I've built about 200 production spec houses on very tight time frames. My cycle times were 50-60 days from permit to delivery and I started about 9 homes per month.

My one piece of advice is to make sure you charge plenty for change orders. Charge high enough to discourage or even make the buyer think twice about making a change. When you estimate a change, there is always something that trips you up that you didn't think of.

Also, I created very thorough inspection checklists for each stage of the build; foundation, rough in, final. These were 150-300 point checks. Room by room, board by board, opening by opening. They are tedious but caught a lot of small issues that would have burned much more time than was spent doing the checklists.
 
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Get Right

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I learned something yesterday. My view of my spec home business might not be what someone else's view of my business is.

I pitched a new investor last week that wants to work with me. I sent him a deal to build some spec homes. Well...I talked with him yesterday and he seamed underwhelmed. After a little prodding I asked him what he expected/wanted to see versus what I presented. He politely told me I didn't ask for enough! He said "Go back and rework this. You aren't thinking big enough. What are we going to take nationwide?". Wow.

I haven't even fully digested this conversation yet, but it seams interesting that people view things (like scale) very differently. My plan never had a nationwide component...not even my big hairy goal thought anywhere near that size.

Who knows where this deal will take me, if anywhere. But as a reminder - don't be afraid to think big, really big.
 
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Get Right

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It's still overcast but I promised pictures so here goes! These are 2 new models I'm testing the market with (you've seen the others). One is already sold, the other is not on the market (on purpose).

20190204_165025.jpg

20190204_172942.jpg
Cheers!
 

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First house is sold!! I knew the buyer and that they were looking. I showed them what was to come in the next few months. They bought it on the spot! Saved me 5% in realtor's fees also :)

I shrunk the design a little to make it work for their family. The sales price ended up being $375k. My calculations show a $104k profit (not including my time/labor). In the end, they are going to get one heck of a house...one that we can both be proud of.

While I am super excited, I have to close on the next lot asap. It has been dragging due to the price but will start to cost me more if I can't "roll" my subs from one job to the next (5-8% loss estimate).
 

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?? What happened?

There was an oasis! A beautiful place with trees, fauna and all the water you could drink. There absolutely was an end to this Desert of Desertion.

So I just sold another spec house. This one was different however. It wasn't finished. It wasn't on the market. It doesn't even have any doors yet...but a customer had to have it. I would consider them my first true "fans".

The market validated my product and now I feel I can scale this business. This sale put me over the $1M mark (gross). Reaching this milestone opens up my next milestone - to reach $10M in sales. My timeline to reach this milestone is fall of 2018. I'm pretty confident I can make it.

So for all of you struggling in the Desert, keep walking. You can do this too :)
 

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Moving on up! This one's on the water...and already sold - yippee!

20190419_082450.jpg
 
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October update: The spec business continues to do well and the market remains strong. I'm hedging a little for the anticipated weakness in 2019. I'm pulling this hedge off by pre-selling a few builds (something I prefer not to do). It shifts the risk to the owner(s) and has a nice side effect of limiting my borrowing needs. Here is the current mix:

0 inventory (all finished houses sold)
1 spec house (framing now, picture below)
4 pre-sold houses (various stages mostly infancy)
5 projects in drawing stage (will convert to pre-sold when cash is in hand)
1 lot under contract (sold it to a potential long term customer)
12 or so proposals waiting for go/no-go

20181002_163042.jpg
20181002_163042.jpg


If you attended the 2018 summit you know my goal was to have 10 houses under construction in 2019. It looks pretty certain I will hit those numbers. I revised my 2020-2023 goals accordingly.

A few challenges in front of me:

1. I need a right hand employee. I am searching but the right person hasn't come into the picture yet.
2. Scheduling. With 10 or so projects going it gets a little hectic scheduling all the things that need to happen. I purchased some builder software and it is helping big time.
3. I'm running out of land and inadvertently drove the price up on myself. Raising prices is difficult due to the archaic appraisal system....so I need to figure something out.

So, things are going well. I feel pretty safe with my strategy/risk and the upside continues to be good. As always, just ask if you have any questions.
 

Get Right

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Any update? How is the development tracking along?
Still making progress! Here is a shot of house #1:
20160418_102321.jpg


The decking should be finished today. I'd like to be further along but making steady steps in the right direction. I make it a goal to advance the project every single day.

House #2 and #3 are in permitting. Ideally they will begin in 1-2 weeks.

From the sales side - things are looking good. My realtor thinks house #2 will get a deposit as soon as the pilings are installed. House #3 isn't listed yet (on purpose). My goal is to sell it without the realtor. I'm getting numerous inquiries (and several people stopping at the job site to talk).

All this activity is also getting requests for me to build some custom homes. I'm resisting right now because it violates "Time". This would be easy money and the lure is hard to resist...but I'm sticking with my fastlane strategy. I struggle with this part of the process most.
 

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Lot #4 is purchased!

Now trying to get #5 under contract. This one will be a little tougher. It's owned by an estate (3 siblings). The price is right but the siblings don't play well together. I'm trying to use my relationship building skills to talk to each party. I'm finding out what makes the deal work for each sibling. I'm searching for how can I provide each of them value. Money, sure but I bet some just want the lot to go away, others might want to see a nice family build a house there. I'll let you know what makes each sibling tick.

Some of you may want to know how I am buying all these lots (all are paid with cash btw). Here is my hierarchy for doing that:

1. I buy it with my personal cash. This method is preferred for obvious reasons, total control. I make cash for this account by doing small Architecture jobs for people, selling on craigslist, building furniture for people and odd handyman type jobs. The trick is that I don't let TIME control me. If I have some downtime from my fastlane I do some work on these projects. I never slow my fastlane down for these projects. I simply squeeze them in (because it pushes $$ into my fastlane). If you have a JOB, this could work similarly.

2. I buy with credit. If I am out of cash I use a Line of Credit (LOC) with a low interest rate (typically 4%). I use these LOC's temporarily until I can produce the cash to pay them off quickly. Advantage here is that there is no "mortgage" or bank to tell me what I can or can't do with the money.

3. I bring on family and friends loans. These typically run 7% and I set the deal up where they get paid at closing. Build time can make or break you with this.

4. Private Investors. My last resort. They usually want 7%+ and a piece of the profit (typically 20%). Not a great strategy but if the numbers work I will use this method.

Notice I never mention getting a mortgage or securing the lot on the LOC's. These remove CONTROL and speed from your deal, not to mention additional closing costs.
 

Get Right

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Hey Get Right, just thought id check in and ask how its going with the builds?
Wow, it's been 4 months since I updated this thread! Thanks @Blair for the reminder! I'm going to make 2 posts to answer your question. One now and one in a few days. Today's post:

I literally feel like I can't walk another day in this desert (of desertion). My feet are burned, my brow is battered and I have no water left to sweat.

But I do. I keep walking.

Be damned the heat. Be damned the duration. Be damned whatever needs bedamn-ing. I'm crossing this thing.

...and you know what? I think I see something in the distance.

(to be continued)
 
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Get Right

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I learned something yesterday. I was invited to a market research lecture by some friends in the building industry. The guy they flew in is very well known for studying spec homes throughout the country. He gave us/me loads of information as to the success potential of new spec homes depending on certain parameters.

His advice to me was to do what I am doing now but 2 counties over. That sparked an interesting drive for information that culminated in a "maybe that's not too bad advice". I'll keep researching and let you know how it turns out. I had no idea people studied this specific of a thing for a living.

Feel free to share some photos

Picture for @Blair !
20170807_140957.jpg
 

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Thanks MK
  • Scattered lots on purpose. I hate repetition of house designs (next to each other).
  • Actually just 1 model :) but you won't be able to see 1 house from the next
  • Absolutely pre-finish closing but with a limited list of customer changes
  • Yes sir, it removes some element of control and more liability but possible
  • Both :)
For what it's worth.... my recent experience with spec building-post 2007...

I do commercial real estate advisory for family offices and we have 3 high net worth individuals in the DC area that have bought specs off plans in the North Carolina, (Saint James Plantation outside of Wilmington) from a merchant builder and then customized.

Sustainable Features
The plans were all done by the builder and the only reason I got involved because I have a LEED AP BD&C designation and the only person on our advisory team that has any construction experience, and these clients are very energy conscious, therefore; I served as a quasi CM (poorly) and helped them spec and buyout ultra high efficiency HVAC, -custom low uv windows, thermal heating, permeable hardscapes, and solar gardens. Items that the builder did not offer and would not warranty.

Value Proposition
Point being, these clients were able and willing to pay top dollar, but the spec builder didn't want to alter the plans in any way nor get involved in any non standard changes. We had to go out and get the MEPs, site, drainage, and setback sections re-stamped by local engineers at our cost, and still had to pay the sellers GC a 15% fee of all extra soft and hard costs. Ironically the builder could of put all of these options into a sustainable model feature and actually charged even more.

High Margins
Bottom line, this spec builder had a take down agreement with a master developer in this in-demand area and our clients would not even consider alternative locations. This seller made when it was all said and done, by my estimates, a 20-25%, margin on the sales cost of over 600k. Amazing considering that he didn't have the pans drawn by a real architect (in NC you can use a draftsman/and hire out the wet stamps) and he hired a GC to build the homes, and paid a realtor the full 6% commission on all sales.

Downsize to Quality
He was just smart enough to secure the right dirt and market it towards the right clientele, buyers who know what they want and are willing and able to pay for it. I have seen this "downsize to quality" trend happening in other areas as well, NC/SC/San Diego/OC/LA.
 

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House #2 piles are going in today:

20160427_130336.jpg


Starting to understand how to run multiple builds at the same time. It takes a little more management but the savings are getting to be significant. For instance - I had a small amount of tree trimming to do on this lot. Called out the tree guys, best quote was $850. Didn't want to spend that much so I got my other crew down the street to knock it out after work...for a free lunch :)

If you notice in the picture above there is a fence being built...by me. I didn't like the pricing once again (and I had 4 days free). Frankly, I enjoyed every minute of building it! Fence boards go on as soon as the pile guy is finished.

Trying to get lot #4 under contract now.
 
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Finished another one. Thought you might enjoy a night picture:

3060 night.jpg

I'll have to say though I'm a little disappointed with the market response on this one. It gets tons of ohh's and ahh's but guess what...not 1 showing scheduled. It's only been 2 weeks so I'm trying to not be negative. But it's tough. I pour everything I have into these houses.

Anyway, I'll keep my mild depression to a minimum. It's just another Desert of Desertion. Yep those still happen.

On a positive note my phone rings off the hook with customers wanting me to design/build them a house. My conversion ratio is off the charts as well. I'm really only hampered by 3 things that if solved could blow up to a monster business: (please feel free to give me advice on them!)

1. Operating capital. It takes about 70k per job for me to cash flow. Currently this limits the number of houses I can build at a time. My funds now are a hodgepodge of cash and small lines of credit.
2. The correct employees. I have great guys already but to get really big I need a few rockstars sprinkled in. I've tried the usual approaches but these guys have been eluding me.
3. At this point I really need a business coach. I think the efficiency of using a coach would speed up some areas that I currently neglect (due to my lack of knowledge). I haven't even started looking for one so my bad here.
 

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Update of where I am:


Lots - I've been looking for awhile and probably found 12 that work. Remember I am going for repetition so the lots need to be decently similar. What I'm trying to do is buy them right (read inexpensively) and in somewhat of an order. I am trying to quietly pick up the "cheap" ones first. Lot #1 is now closed. Lot #2 had a difficult owner so we couldn't agree on terms - on to the next...


Money - It's going to take $1.03M to build these ($342k each). Typically that is going to require $200k down for our team get a bank loan. We don't want to put that much in so the lot purchasing has to be "right". With the instant lot equity we are putting down $120k in addition.


Partners - I had to take on 2 partners to do this. I will hold about 60%. I selected partners based on how I worked with them before and what they could bring to the table.


Bank - Now this is a big deal. One of my partners has the bank connection. This will be his major contribution (read - he is very well off). We will be asking for $800k to start and don't expect much of a problem. One of the benefits of keeping a big rolodex is having access to lots of these guys.


Design - I designed a pretty sweet house (IMHO). It's designed for what the market wants, repetition, speed, profit etc. It is roughly 3,000 square feet. Check it out:

proof_05_PP_2.jpg


Profit - I am estimating a profit of $74.4k per spec. This would translate to $223k for the first 3. I would retain 60% so my best guess is putting $133k in my pocket.


Time - I am shooting for 9-12 months to get the first 3 built and sold.


Questions? Ask away :woot:
 
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Early in this thread I promised to show you the numbers, so here they are! These are from house #2 which I would consider repeatable.

Sales Price: $532,000
Lot Cost: $44,450
Construction cost: $395,000
Closing Costs: $36,173
Interest costs: $14,241
Business costs: $6,000
Net Profit: $36,136
Net profit as a percentage: 6.79%

My goal is 18-20% profit so I still have some work to do... but it doesn't hurt to throw $36k in the bank. My current houses are benefiting from the knowledge and the profit is trending higher.
 
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I always wanted to work with builders. It seems some builders have their properties listed by one particular agent. As a builder, what would it take from me, an agent, to get you fired up and have me be your exclusive listing agent?

I'm pretty easy. If a realtor brings me a buyer, they get the next listing. Maybe go in with that "deal" and see where the relationship goes. I would recommend smaller builders too. The large ones try their best to sell them in-house.

I form most of my relationships outside of work. Philanthropies, church functions, parties etc. The more I "do" the more contacts I make and things fall in my lap.
 
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I just broke ground on my first spec!

Congrats! Keep notes on everything. I still use notes from years ago. It will make you money.

UPDATE: As requested

The spec home business continues to do well. It is growing nicely into the 10 house/year target I set for 2019. I have 6 under construction and a few more proposals out. All are sold with 1 exception (not on the market yet).

I hired 2 project managers and soliciting for another Architect.

I bought some new equipment to make life easier. I'm using the same method where I bill it out higher than my financing note. So each piece makes me money every month...with no effort on my part.

I have a few challenges ahead. Cash flow is becoming more interesting due to the high dollar figures. I'm also spending a little more time on the company than planned. I think the new Architect position will resolve a lot of that.

The business remains a heck of a lot of fun. The rough patches are easier to glide through thanks to my work on the comfort zone (see thread in signature). The high points come mostly from random compliments about our work. I especially like the ones that say I am dramatically improving their neighborhood. I'll try to take some pictures tomorrow.

As always, ask anything you like!
 
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Having an exciting week with the spec houses! The first house finally has the pilings being installed:

20160316_164250_resized.jpg


Lot's #2 and #3 are cleared with site prep under way. The timing isn't going to allow the pile guys to "roll" to the next one. They are putting one job between ours. In the future I will eliminate this with tighter scheduling (saves a few thousand).

I've been noticing that sub-contractors (specifically framers) are very wishy/washy about their pricing. It appears that they favor "seat of the pants" pricing as opposed to itemized detailed proposals. What I found is that this gives big swings in pricing from sub to sub and day to day. I figured out how to swing this in my favor. I simply continue to get bids on the work all the way up until the sub start date. I saved 5k on the framing labor by doing this.

Another money saver is simply using cash. I can move so much quicker and get better pricing. Also - less regulation! No banks wanting ridiculous information and wasting my time. How do I do it? I use that 16 year old rolodex of contacts that I built up. It takes many years of networking, but it works.

Other random bits of knowledge accrued:
  • Make steps on your project every day. I was sick all this week. I didn't want to move let alone work. I made the decision that just 1 tiny step a day would get me closer to my goal. Day 1, I simply put up one "for sale" sign. Day 2, I picked up some prints for the jobsite. etc. Those little steps add up.
  • Take advantage of cheap advertising...you never know what will come up. I have signs on all 3 lots. They are actually generating calls from people that want me to build on their lots! Pretty cool.
  • Focus on what the customer likes/wants throughout the whole process. Ask yourself "what would my customer be happy to see"? Is it a fantastic designed jobsign? A spotless, clean lot? Get in your customer's head. Do things that have them call you and say "wow!" You will know when you get it right...they will tell you :)
Looking forward - I have a meeting tomorrow with another lender. The goal is to get more lots under my belt. When I am able to secure this next round of funding I will start to test the "fastlane" component of building these houses. The main component being time. Once I prove that my time can be mostly removed, we should have a good model for other fastlaners to follow.
 

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Thanks JScott

I've been able to achieve my goals without those things,

This is interesting. In the past I've needed to market heavy to sell my products/services. This particular business appears to not need it.

I won't need any of the things above to hit my goal but perhaps my goal was too low.
 
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Rainy today so no pictures, trying again tomorrow.

BTW - Check out that new shiny red badge under my avatar!
 

jon.a

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With my new found freedom (see Anniversary post for background) my mind has been working overtime on something fun (and fastlane) to do. I evidently don't handle boredom well. So I started another business building a spec home(s). Since there isn't much real estate talk here I thought you might enjoy watching the roller coaster that has just begun. I'll try to give you the ups and downs the best I can. Feel free to repeat my process/ask questions/make suggestions, whatever you like.

The Market (research) - I was reading a housing report a few months back. The report showed our area to fall 8,000 housing units behind what was needed to sustain our area. Basically we were going to have a lot of people looking for houses that weren't there/built. I did some market research and sure enough the housing inventory was being depleted at a rapid pace. Another sign the report might be right was rapidly increasing housing prices. If this continues we should see a much higher demand for the next 3 years (estimated time to recover housing stock).

The Idea - Build a spec home(s) for the anticipated market.

The UVP - I've been paying attention to a certain "style" house that is built a few hours from here. Everybody ooo's and ahh's at them but nobody has brought them to my area. There's not an obvious reason they aren't here and I am very involved in the industry.

The Leverage - I'm an Architect by trade so I have quite a bit of leverage to use. The main ones are:

· Deep residential experience (design and construction)

· Ability to get deep product and sub-contractor discounts

· Huge rolodex of professionals I work with already (accountants, bankers, etc.)

· I've built 3 buildings myself before (none SFR)


CENTS - Hey, its the Fastlane Forum - you think I would forget that :)

· Need - Established by market research

· Entry - Not easy to put all the pieces together, high $, I own the land

· Control - I am the major shareholder

· Scale - I am only really limited by the ability to purchase lots at the correct price. I should be good up until about 30 spec homes.

· Time - Most of the work will be on the hands of others but I will participate heavily (because its fun). Future decreasing of my time should be possible due to the repetition I plan.


The Money - Building spec homes is very expensive. I will take on a few partners for start up money then leverage our credit/track record for a portfolio bank loan.


The Plan - I've seen people build a spec house or 2 before. One of the major problems I see is that they only build 1 at a time. This would take you FOREVER to make any significant money. Therefore I plan to build 30! But not so fast, I will have to stage them to make the whole process work. I will start with 3 houses (I am estimating a 5% cost savings just by building 3 at a time). I will then start additional ones as the first houses sell (this will make the bank happy and possibly increase the portfolio loan).


The Disaster Plan - Yeah, I still do those....so what happens if it doesn't work (ouch)..... I set up a system of partners in a manner that if we built 3 and none sold, we could each move into one. The main objective would not be achieved buuuut at least we would be financially safe and be able to maintain our bank love. Bonus - they will be pretty sweet spec homes.


Sooooo - let's build a spec home!
This might be fun.
 
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