# How to Calculate Profit on a Construction - Posted by Robert

Posted by Robert on April 05, 2006 at 10:02:10:

Hi John,

What should percentages be for the purchase of land and construction be in order to come out with a good profit. Thanks for you response.

Robert

How to Calculate Profit on a Construction - Posted by Robert

Posted by Robert on April 05, 2006 at 01:36:14:

Hi,

Could someone help me out on trying to figure out profit for a new construction? I am currently looking for land and looking at comparables around it. How do I calculate how much profit I can make after land+construction+misc fee. Is there a specifc formulat that builders use before they take on the project.

Thanks,

Robert

Re: How to Calculate Profit on a Construction - Posted by Jeremy FL

Posted by Jeremy FL on April 06, 2006 at 08:48:52:

This is how I do it. Forget about percentages and how much you pay for this and that. Keep it simple. How much are houses selling for in the area you are buying the land? Take that number and start subtracting the costs. If there is enough left over to make you happy buy it.

10% - 12% - 15%… tops - Posted by JT-IN

Posted by JT-IN on April 05, 2006 at 21:42:07:

There is much more to it than figuring the PROFIT PERCENTAGE… Building is really a KNACK business… you either have the idea, that inate sense of how to get things done, on time and on budget, or you don’t. You don’t become a successful and profitable builder by using a calculator.

I have built new homes, maybe 10 or 12 of them… (in fact breaking groud on another one this week, but the only reason why this is so, is because I already own the land/subdivision). It is not an inate sense or talent that I possess, but I have had the financial accumen to do so and live through the project(s)… and make less than is the norm, and still survive the gig. Building is much more about understanding the entire process, every nail, board and shingle, and how to control costs, both for materials and labor, and manage the project… EFFECTIVELY and EFFICIENTLY… aka PROFITABLY. None of the above is mastered with a calculator.

Yes, there are certain percentages that one shouldn’t exceed for land costs… maybe 20-25%… also othe ratios that might be held for comparison, but if you are asking that question here, you really aren’t ready to undertake any kind of construction project, on the scale of building an entire house… All well enough to discuss it here, but certainly not recommended to take input from here and go apply it in the field, on your first new home you plan to build…

General contractors who have their act together, usually make about 12-15% on building a new home… (for those that are not out there swinging the hammer, prodcuing as a tradesman, but planning, supervising and managing the project).

Just the way that I view things…

JT-IN

Re: How to Calculate Profit on a Construction - Posted by John

Posted by John on April 05, 2006 at 07:21:58:

Robert
There is no easy answer here.
Figure a minimum of 25% profit (30-35% would be better)on top of all costs. Take the total price of the house and compare it to surrounding properties. You do not want to overbuild or underbuild the neighborhood.
remember you time frame and costs will be longer and more expensive than the more established builders.

Re: 10% - 12% - 15%… tops - Posted by Robert

Posted by Robert on April 06, 2006 at 02:03:04:

Hey JT,

Thanks for the reply. I am trying to do my due diligence to avoid any kind of problems. I agree with you on having the inate sense of how to get things done. I am not trying to become succesful using a calculator. I am just trying to understand the whole entire process like you said and protect myself and have a successful project. If you think back to your very first house you built that’s where I’m trying to be at. Thanks for you input.