Re: To Develop or Not To Develop - Posted by Steve (Atl)
Posted by Steve (Atl) on July 14, 2003 at 15:48:19:
I would look very hard at your abilities to manage a project of this scope. I say this because, you have to be a manager of this project; not a worker of this project. You become involved with a specicific facet of this project and it will get bogged down. Interest only payements is part of the game, but once your project gets bogged down and those interest only payments start becoming repetitive it can suck your profit out in a matter of months.
But at the same time, you have to have confidence in your Subs that you can trust them with limited supervision. If you have to keep looking over their shoulders and focusing on whether they are doing quality work, that can be a plan for disaster as well.
Myself, aside from remodeling, I build about 10 houses a year (not a lot when some are closing 5 or more a month) but I have complete and total trust in my Subs. I can tell them on the phone my changes and such and 99.9% of the time, I can plan on them doing exactly what I requested. Now, this does not mean that I do not pay close attention to their work; au contrar. I am a very stickler for details and quality. If there is something I do not like, I make them redo it at usually their cost. But usually, by the time I catch a problem, it is very simple to correct. But that is the exception to the rule. I very rarely find problems. I suppose that I can attribute this to the relationship that I have with my Subs. I have know about 85% of them and their crews for over ten years. I know the quality of their work. A crew usually does not have the chance to screw me over a second time.
Now having said all of this, the work and materials that go in to building a house can be fairly static. By that I mean that if you have a good relationship with your Subs you can fairly easily cost out a house fairly easily. Knock on wood, I have never came out on the losing end when costing out a house while using my Subs. Now there have been a few houses where a particular sub was not available and the Sub I used ending up costing me more. But I always plan for those instances. I may lose over a particular phase, but in the end, I am usually where I need to be. With that said, labor and material can be fairly static. Where a person can really sink his deal is in the property. I have seen many an unexperienced builder go out and think they are going to set the world on fire. Have a set of plans and go buy lot (which is actually backwards to begin with – I always get my lot selected before I get my plans; you want to have simialr plans for a particular area). It is here that I have seen builders lose their deal in the lot. I honestly have seen builders pay $65k for a lot where the going houses are 1500sf selling for 105k. In situations like this the best they could hope for is to break even. To be honest, I have never seen a beginning builder break even.
Not trying to disuade anyone from building, because I truly love to build. It is a true passion of mine. That maybe is why I only build so few, I tend to break one of my rules and work some of my projects. But this is what I am happy at. I suppose that my reccomendation is to maybe contact a local builder and maybe ‘give’ him this deal or opportunity. Before you damm me to the real estate gods let me explain. If this is a good oppurtunity, I can promise you this will not be the lsat opportunity. Give this deal to a local builder with the understanding that you would like to be a part of this deal to learn exactly what goes on in this industry. Spend some time on the site. Wotk with the Subs. Spend some time with the builder/developer. You would be suprised at what you will learn. Your asking how do I know? This is exactly how I learned to build my first three houses.