is there more profit to be made in home builders?

10 Replies

right now i am in the fix and flip business. are deals any harder to find? is the business of fix and flip to home builder somewhat identical?

I don't understand what you're asking. 

In most markets I would say that it is cheaper and easier to fix an existing property than it is to build one from the ground up

Unless you have a seasoned team and process, I would stick to fix and flip and finding deals.  I work for a very large and leading home builder, the reason they are so successful is because they have a large 1000 person organization behind them.  They can simultaneously build houses hot off the line while still having several more lined up and ready to go.   All our houses come with multi-year warranties and excellent customer service. 

Our business absorbs a lot of local builders and contractors as it offers them steady paychecks and benefits.  

Hope this helps! 

@Douglas Slingerland

it did thanks. what about finding homes that need to be demolished though?

getting a team in order to rebuild it wouldnt be worth it?

I would say getting a team in order is your number one mission.  Get a construction team, a financial team, a team of brokers.  The ultimate goal is to have people you can trust doing the tasks you would otherwise be doing yourself.  

It's easy to see this with construction, hiring a team is an obvious.  It's not always the case when you think about hiring someone to do your books, or find your houses, or a seasoned broker, marketer, etc.  

Essentially, you are building a company.  One brick(person) at a time.  How can you enable those people around you?  Get them to the next step?  That is the question.  If the answer is demo homes, do it! Fix n flip? Do it! Home building? Do it!  

Work with the resources(people) available to you in your area.  Hope that helps. 

If you're talking about a demo then I think your only value is the land it sits on.  Are you getting the land significantly cheaper than it would otherwise cost? (As you're paying for a demolition on top of building a home)  That's the primary difference between a straight build and a demo build. 

If you're asking if new construction is better or worse than flipping, the answer is, it depends.

We've flipped 150+ houses and built about a dozen -- building is actually easier than flipping, but it takes longer, requires more knowledge and provides a different set of challenges.  That said, these days, we're making a lot better money on the new construction than we are on the fix-and-flips.

The questions you need to ask yourself are:

- Do you have the knowledge to build from scratch?

- Do you have all the contractors in place?

- Do you have the ability to budget and schedule?

- Do you have adequate financing?

- Are the deals available in your location?

If the answer to the above questions are yes, then go for it!

Originally posted by @Jassem A. :

In most markets I would say that it is cheaper and easier to fix an existing property than it is to build one from the ground up

 I think that depends depends on how much fix'n you're doing.  I'm a partner in one currently, where we are adding a second story.  It has been very challenging, to say the least.  We did with the thought that getting regulatory approval would be easier than tearing down and building new.  That was an incorrect assumption. We are ruing the fact that we didn't simply tear it down.  We probably would have sold the new house a month or two ago while the rehab is still ongoing....   

I have 4 homes going right now, and should make around $60k on a $25k hard investment (the construction/lot is mostly funded by loan) per home. Granted, I need more than that in the bank to cover costs while waiting on bank draws, but my $281k for lot and construction yields a $368k sale on the home, typically 4 to 6mos. Back out some soft costs and we should be around $60 profit per home at the end of the day. 

BTW, I do this with no team... just me. Everyone else is a subcontractor. So, really it depends on what you know how to do, I have built/managed the construction of approximately 150 homes and still learn something new every week....

Fix and flips is 20% of ground-up construction. 20% the qualified manpower/subcontractors, 20% schedule/time, 20% the funds, 20% the knowledge required. Remember, not all trades people can read plans, perform work, etc. Your current crew/subs might not be enough to do it. A good/experienced GC might solve this, a big MIGHT.

The difference is that you do not really need to get a team together or necessarily pull any permits or draw plans for a property that only needs repaired.  A person with a day job and some basic tools could repair a property on the weekends in a matter of weeks or months and then rent the property out or sell it for a profit.  Many foreclosures sell for a much lower price simply because the water is turned off or they don't qualify for financing.  Sometimes more problems exists but whatever problems do exist, it will take many less man-hours to repair than it would take to build from the ground up.

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