Escaping flipping to become a new home builder
Flipper/Rehabber · Bloomfield CT · Member since 2020 · 1k+ posts · 408 votes
Is there any guidance published on tactics that new home builders should embrace such as one sided contracts to excessive markups on upgrades?
Is there any guidance published on tactics that new home builders should embrace such as one sided contracts to excessive markups on upgrades?
My own $2 (up from $0.02, due to inflation): Where you can, look for non-recourse. Have lenders/lending teams that are compatible with your goals. Are you looking for "low end," or "high end," say using $10M as a rough guide. I know some high ends, that work with foreign entities looking to invest in the US, or 144A Bond Funding & Regulation D Loan Program: 100% LTV/LTC. Set your criteria of what you want to do, and network to find people who can help you accomplish those goals.
That’s a great question — the “builder playbook” is very different from flipping. A few tactics most successful builders lean on:
• Contracts: One-sided contracts sound good on paper, but in practice they can hurt your reputation and limit repeat buyers. Instead, builders often use builder-friendly contracts that lock in timelines, allowances, and change-order fees. That way you’re protected without scaring off buyers.
• Upgrades & Markups: Yes, upgrades are a profit center, but savvy builders know to focus on perceived value. A 40–50% markup on custom cabinets or flooring is common, but it works best when buyers see it as part of a turnkey, hassle-free package versus feeling “nickel-and-dimed.”
• Financing Strategy: Many builders leverage short-term capital (bridge or hard money) to cover land acquisition and construction draws, then refinance into long-term take-out loans once homes are sold or stabilized. This helps protect liquidity and scale multiple builds at once.
• Reputation: Unlike flips, where speed and margin rule, new construction is about consistency. Realtors and buyers watch how you handle warranty work, inspection punch lists, and communication — it directly impacts your ability to presell the next project.
If you’re transitioning from flipping into new construction, I’d recommend thinking less about “excessive markups” and more about systematizing your process so every project is predictable and repeatable. That’s what allows most builders to scale.
Curious — are you looking at building spec homes, or more custom builds?
One sided contracts are usually the quickest way to ensure the best vendors and contractors will not work with you. Alternatively, you will receive higher pricing because you will be viewed as someone who is difficult to work with. Prioritize fair and reasonable contracts with language that shifts liability to the responsible party. Whether you are self-performing or utilizing a GC will also influence the contract management process, but a few guiding principles include:
1. Ensuring everyone swinging a hammer has GL insurance and is licensed if the trade requires.
2. Both the GC whether its yourself or a 3d party, and the owner of the land are both listed as additional insured under every sub-contractor GL policy (and GC's policy if 3rd party builder is hired).
3. Subcontract agreements with warranty requirements to pass along builder warranty issues to those responsible for the work.
4. If you are utilizing 3rd party builders, E&O/professional liability coverage is a huge gap in coverage. Worth paying a little more if the GC carries this coverage. What happens if you identify a defect that hasn't caused property damage or bodily injury yet? GL coverage rarely will cover this, and you are at the mercy of the GC to make the repair. What if it's an expensive corrective measure? E&O may cover this.
5. Try to work with as many vendors as possible who will put you on net 30 payment schedules. Similarly, suppliers who have favorable house credit processes if you are self- performing.
6. Whether you are hiring a GC or self-performing make sure lien waivers are signed. This is particularly important if you are relying on a 3rd party GC. Paying a GC who doesn't pay subs is a huge issue, can cloud tile and interfere with warranties. Making sure everyone is paid for their work is critical.
Is there any guidance published on tactics that new home builders should embrace such as one sided contracts to excessive markups on upgrades?
My own $2 (up from $0.02, due to inflation): Where you can, look for non-recourse. Have lenders/lending teams that are compatible with your goals. Are you looking for "low end," or "high end," say using $10M as a rough guide. I know some high ends, that work with foreign entities looking to invest in the US, or 144A Bond Funding & Regulation D Loan Program: 100% LTV/LTC. Set your criteria of what you want to do, and network to find people who can help you accomplish those goals.
@Eddie Starr what do you consider high margin on upgrades?
I totally get what you guys are saying about all of this here but my question is how are the Big Box Builders doing it nationwide? The top 2 new home builders built/sold over 160K+ houses in 2024.
How are they doing it at scale? In practically every state? Profitably.
Sometimes I think I overthink some of these things.
Just wondering.