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EXECUTION Let's Build a Spec House!

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iAmTrade

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Very interesting project you are undertaking. I do like the home design. I do have prior construction experience, (In New Jersey).

What if I said...I knew a company that can build modular homes for you...

Your @Get Right selling point is- there is a demand for the homes, hence you will supply. How about.... supplying it cheaply, at great quality, impeccably efficient, possible to have it off the grid, self sustainable, VERY VISUALLY APPEALING.

Cash flowing with what I have in mind is to be your new focus. As you won't want to sell.

I have wanted to do this a few years now. 1 problem for myself was- I did not, and still do not have the capital to buy the land to make it worth the venture, nor do I have the capital to finance.

You are to spend 1.03 Million to build these... 3 Homes!?!

How about change that figure. Take the 342K$ for 1 of your homes and build 8 of them instead?

You are looking to profit at 172K$? or 104$? per home after you sell...

What if I said you can have yourself 105,600$ profit per year instead?
---
If you want to "go big" and spend your 1.03 Million$...

Change it, message me @Get Right

And
instead of building 3 homes, you can get 24 at around $320,000.00 a year cash flow.

It doesn't hurt to just talk. Will wait for your message. I do love this, let me say that for certain.
 

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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:


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!
 
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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:

 

JScott

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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.
If you want to save money and scale operations, I would suggest ditching the idea of using a builder/GC and hire a licensed builder as your project manager. Then sub out the individual tasks yourself. The best way to save time/money is to hire a good turn-key company to handle things like framing, windows, doors or other dry-in tasks. We build in several states, and use companies like Builders First Source and ProBuild, who can handle large volume and who have rock-bottom lumber and framing supply prices.

Additionally, if you're going to be building in the winter, have your framers do pre-assembled wall panels instead of building entirely on-site. The cost is about the same (the labor/material split is flipped), quality will likely be a bit higher, and most importantly, you'll speed up the lengthiest portion of the build. We can typically frame one level per day, so for a two story house with basement, framing will take 2-3 days, plus an extra half-day for the roof trusses.

With a good turn-key framing company (and a good roofer), you can be dried-in within a week of framing starting, which will not only save you a lot of time, but will also eliminate a lot of risk in the winter months. We're building for about $62/sf in Georgia and about $93/sf in Maryland, which is pretty comperable to the larger national builders -- and that's mostly due to self-management and having a couple good turn-key companies that can move fast and provide economies of scale.

Also, a good project manager should be able to condense your timeline a good bit. You mentioned 9-12 months per build, but with some good planning you should be able to pull that in to about 5 months (about 100 days of work) without much problem. Just make sure your mechanical contractors do things in the right order and make sure your schedule utility hook-ups well in advance (that can kill your timelime).
 

4x4ord

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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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hire a licensed builder as your project manager.
This could be a great idea when/if we get bigger. Thanks.
 

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4x4ord

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Dang! I am trying to do 1 a month, guess I better up my game!
Honestly, there are some major advantages to running multiples of houses. The biggest is keeping contractors on your site. They are like herding cats once they go to someone else's job.

A good rhythm for me was starting 2 foundations a week. At that pace I could pretty much role my contractors from one house to the next.

Good luck! It sounds like you are off to a great start. Don't hesitate to shoot me a PM if there's a question I might have an answer for.
 
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Thought you might want to see the view from lot #2. Just got it cleared yesterday. 5 hours of cutting and chipping, lots of fun.

 

MKHB

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Thought you might want to see the view from lot #2. Just got it cleared yesterday. 5 hours of cutting and chipping, lots of fun.

Oh man... r u kidding me. What a place to work. Nice.
 
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Having an exciting week with the spec houses! The first house finally has the pilings being installed:



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.
 

JScott

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Once I prove that my time can be mostly removed, we should have a good model for other fastlaners to follow.
Please don't take this the wrong way, but if you keep doing things the way you have been, there is no way you'll be successful in removing TIME from the equation. Some things I've noticed:

- You don't appear to have a master schedule. In order to save time (and remove your time), you should have a schedule of the entire project upfront and you should have your contractors scheduled upfront. That means that if rough electrical is to start on May 12, you should have your electrician already scheduled for May 12. If you're using contractors that can't schedule you in advance, you're using the wrong kind of contractors.

- That said, I think you're using the wrong kind of contractors. You talked two months ago about how the foundation work was ready to start but that the contractor was dragging his feet. Here we are two months later and he's just starting this work! In two months, you should have been half-way through the project.

- It appears that when your contractors aren't getting things done, you're picking up the slack yourself. Like clearing the lots. There's no better way to lose time and to give yourself a $20/hour job than to take over for your contractors when they're not getting the job done. Again, if you can get it done faster than the contractors, you're using the wrong contractors.

- You are trying to scale in volume (getting ready to start foundations for lots 2 and 3), but you haven't figured out how to optimize one build. This is backwards. Until you can build a house in 4-5 months, you shouldn't be trying to build multiple houses at one time. Better to finish one at a time and take year or two to finish all three than to work on all them simultaneously and take two years to finish just the first one. If you can't build a house in 4-5 months with only a few hours a week of your time, you're not ready to scale.

- You're talking about making building decisions on the house that you've already started building. Every decision -- right down to the color of paint and brand of light switches -- should be made before the project starts. If you can't hand your contractors spec sheets that detail every component of the build, you're going to find yourself bogged down in making these decisions later, and your contractors won't be happy working with you.

- You mention getting better prices by paying cash. This tends to be the case when contractors are expecting that they won't fill out a W9 and your won't provide a 1099 at the end of the year. Keep in mind that if those contractors don't fill out a W9 and don't pay taxes on what you pay them, the IRS will consider YOU to owe those taxes. So, your cash payments can actually end up costing you about 30% more than you think.

- If your contractors are giving you discounts for cash, keep in mind that they probably don't carry liability or workers comp insurance. Unless you're willing to take substantial financial risk, you probably want to carry your own workers comp and liability -- expect that to run you about 12-15% of your total build costs.

- Are your contractors licensed? If so, I'm surprised they would offer cash discounts. If not, keep in mind that you are running lots of risks should work be done incorrectly with unlicensed contractors. Get a good umbrella policy in case the house burns down one day or someone dies from CO poisoning because an HVAC system was installed incorrectly.

In general, it seems like you are approaching this build like a job, not a business. Until you figure out how to run it as a business without you having to be much involved, I wouldn't try to scale to multiple houses.

Just my $.02...and I've been there!
 
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Please don't take this the wrong way, but if you keep doing things the way you have been, there is no way you'll be successful in removing TIME from the equation. Some things I've noticed:
Ha! I don't take constructive criticism personally. Thanks for the input!

I have a general contractor that is tasked with most of the items you mention. He's not moving at an acceptable pace (agreed). I'm trying to motivate him more effectively. It's not easy to break "beach fever" as we call it.

My projects are 100% legitimate (I'm an Architect). Everybody is licensed, insured, umbrella'd, and W-9'd. I also know the vast majority of them.
 

JScott

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Ha! I don't take constructive criticism personally. Thanks for the input!

I have a general contractor that is tasked with most of the items you mention. He's not moving at an acceptable pace (agreed). I'm trying to motivate him more effectively. It's not easy to break "beach fever" as we call it.

My projects are 100% legitimate (I'm an Architect). Everybody is licensed, insured, umbrella'd, and W-9'd. I also know the vast majority of them.
Does your contract with the GC lay out specific deadlines for deliverables? Does the contract call out penalties for missing those deadlines? That might help him get his butt in gear...
 
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Does your contract with the GC lay out specific deadlines for deliverables? Does the contract call out penalties for missing those deadlines? That might help him get his butt in gear...
Unfortunately no. I haven't done LD on residential work before but....I bet it would get his attention.
 

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Managing contractors and subs can be like herding cats, particularly when there's plenty of other work around... lose one job, they just pick up a different one. Crazy.
 

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


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.
 

Dusty_19

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Still making progress! Here is a shot of house #1:
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.
As someone who grew up building custom homes for 8+ years, I can say that this thread genuinely intrigues me! I have built quite a few spec homes for clients who pay gobs more for just the "unique" design alone. No extra square footage, no additional amenities or benefits, just for the sole purpose of standing out amongst all the cookie cutter houses. I've been considering going this route once I have a little more capital to run with in my fast lane ventures.

I admire your doings and will be following this thread! Good luck!
 
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House #2 piles are going in today:



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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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.
 

Ikke

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Will a mortgage not get you a lower interest rate than your friends and family loans? Seeing as mortgage rates for 20 years are now at 2,3%.
 
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Will a mortgage not get you a lower interest rate than your friends and family loans? Seeing as mortgage rates for 20 years are now at 2,3%.
Yes, but not worth it because:
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.
 

Blair

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Whats the latest update? Love seeing the updates as looks as though construction methods are slightly different to that of my home country.
 

BrandonS85

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Is it normal for houses there to take so long? Up here a halfway decent spec home can be done in 3 months or so, even of the nicer, more luxury-ended ones.
 

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