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\nRelated:<\/strong> 4 Reasons You\u2019ll Never Find a Good Contractor (Insight From an Investor\/Contractor)<\/a><\/em><\/p>\n
I also noticed that some of the best builders who built residential homes also built apartment complexes and held onto them. Sometimes, they would sell the complexes before roofs or heaters needed replaced, typically around the 20-year mark. These builders were sharp. They often built several hundred units, had on-site management and maintenance, and always picked nice areas and school districts, often near major highways.<\/p>\n
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2. Buying and Creating the \u201cHighest and Best Use\u201d of Land<\/h3>\n
Buying land can be a blessing or a curse, as it is very rare to cash flow off of land alone.<\/p>\n
When I worked as a real estate agent<\/a>, we had a rule: \u201cDon\u2019t buy it unless you can develop it within a year.\u201d<\/p>\n As with any rule, there are exceptions. During college, I worked for someone who grew and sold Christmas trees to pay the taxes on the land that he was eventually planning to building homes on. That example is rare, though. Most developers would just make the purchase contingent upon township approvals, or they would option the lots as needed from the land seller. This “pay-as-you-go” approach was pretty smart since it took a lot of the risk off the developer.<\/p>\n Some of the bigger operations could afford to buy large parcels and hold them. Or they would just put in roads and sewers with subdivision approvals and sell the ready to go lots off to smaller builders, almost like a wholesaler flips a residential deal to a rehabber<\/a>. Sometimes these guys made just as much money through site development and land improvements as they would\u2019ve if they actually built the homes.<\/p>\n While working with builders, I experienced first-hand how they dealt with their subcontractors.<\/p>\n The smart ones were great at negotiating, getting multiple bids, and really knowing their costs. It was years before I realized that the builders were using the subcontractors\u2019 money, supplies, and labor to finance half of the residential house\u2019s construction. I\u2019m sure you\u2019ve heard of how builders are slow to pay, often taking 60 to 90 days to pay their subcontractors and holding 10% of the bill until closing to handle complaints. Approximately the first half of the subcontractors will be paid by the builder, but the second half are typically paid after closing when the developer has already been paid by the homebuyer.<\/p>\n I\u2019ve also seen them pay for supplies with cash-back rewards credit cards and deduct money or chargeback the subs for mistakes, poor quality, touch ups, backorders, and trash left on-site\u2014or even for time delays.<\/p>\n The best builder I ever worked for paid every two weeks, but there was one catch: If you had any complaints outstanding, he\u2019d freeze all your bills until the complaints were handled. He was the most reputable builder I ever met, and all the subs wanted to work for him. His projects were always on time.<\/p>\n Of course, there were bad builders, too\u2014ones who beat everyone out of money and would just hope that only a few subs would sue. They took advantage of the subs and abused them. Some were really slow to pay or had bad reputations. This is one reason that only 50-60% of my painting company\u2019s contracting work was with developers.<\/p>\n Let\u2019s say you already have the knowledge and competencies mentioned above. Are you having trouble hiring enough quality contractors due to the smaller scale of your project(s)?<\/p>\n3. Working with Contractors<\/h3>\n
![\"contractor-perspective\"](\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2017\/01\/contractor-perspective.jpg\" "\\"\\"")
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