Answering an email question … - Posted by Merle
Posted by Merle on January 25, 2001 at 15:49:53:
I am a builder and own a mortgage company. Its getting harder to compete in both businesses. I have L/O several homes That I have bought. Have you ever thought about building and then Lease them out? I have a small 1100sf ranch floor plan that will cost me about 50K to build and should retail for 83-85K. I am just brainstorming some Ideas
An excellent question ? and for us ? easy for me to answer.
Yes, we thought about building some houses ? for about 15 minutes, then discarded the idea. Our situation is unlike yours in that we don?t have sub-contractors waiting for us to call. We would have to go thru the entire process of finding subs, then weeding thru the bad ones to find the good ones.
Then, once we had the people in place, some would still fail us. Even with everything in place, we would still feel we should ?ride herd? on the project. Assuming a 3-month completion, two hours a day of our time ? and we would spend around 180 hours or our time (and I think it would be more than that).
All that time and work would produce a house ready for sale. We still have to market the house and service the account until we are paid off.
Last week, we attended a Trustee?s sale and bought one property. I had spent a couple of hours doing a little research prior to the sale. We paid $54,285, the value after a little paint and carpet (about $3,500) will be $79,900. That leaves $22,115 profit.
Yesterday, had a call from a Realtor (specializes in HUD foreclosures). He told us about a couple of houses that had just dropped in price ? in a subdivision where we already own 6 houses. HUD price $52,050. Market value $69,900. Both need paint and carpet ($2200). Profit $15,650 times 2 = $31,300.
Now then, should you consider building and leasing? You should at least calculate all your costs, compare the options you have, and then make your decision.
We receive at least one call every week from someone wanting us to look at some other business venture, do seminars, sell a course on our business system, or something. Finally, we realized what it is that pays the most for our time with the least hassle and the most freedom.
Someone asked about our retiring. Pat asked why we should. She said that as long as we can talk, we can do this ? and continue helping people as well as making money. She even went so far to add that she could always push me around in a wheel chair if it came to that ? guess my future is planned.
I know several builders who make a lot of money, so none of what I have just said applies to them. We started a mortgage business in April 1997 and gave it away in December 1997. We did not like the business and easily concluded the dollar return for time spent was way too low. Yet, if you ask Ed Garcia, he can probably show you that
his dollar-to-time ratio is very good.
Would I build houses and lease them? Absolutely not! But, that does not mean you shouldn?t. In fact, you could probably make a lot of money in that business. Perhaps someone reading this post has done exactly what you describe. If so, let?s hope they respond also. I would like to hear their thoughts. Who knows, they might change mind.
Have a GREAT day ? TODAY!
Merle