I am looking to start building new construction, opinions?

Question

I am looking to start building homes, specifically in Oklahoma and Texas. Anyone have any advice, strategies, or opinions on starting new construction?

J Scott · Answer

Personally, I wouldn't be building at this point in the market cycle, especially if you're new. By the time units are ready to transfer to buyers (likely 12-18 months if you're doing this for the first time), there's a good chance we'll be in a downturn in the cycle. And the part of the market that will get hit first (and is already starting to get hit) is new construction buyers.

https://www.youtube.com/watch?v=qjdlv5TDuDg

J Scott · Answer

Yes, that's what happens at the top of the market between an expansion and contraction in the economy -- different areas will start to act differently with some continuing to strengthen and some starting to show weakness.  In fact, this is a good indicator that we're at the top of the market (the end of the recent expansion).  But, when the market turns, it will generally turn for all areas.

It's amazing the number of people I speak with who believe that their market is *different*, that the cyclical nature of the economy doesn't apply to their area for one reason or the other.  And yet, during a typical recession, very few -- if any -- markets are completely immune.  And I don't know of any market where new construction will thrive through a recession.

I get that people want to think they or their market is somehow special or different, but it's unlikely to be true.

Not that my saying that will stop anyone...  :-)

Joshua Stewart · Answer

While building new will take longer than a rehab (generally), you don't have the kind of hidden "surprises" typically found in rehab. Most if not all such "surprises" in new construction can be avoided with proper research and planning up front.

I understand what was said before about there seeming to be a downturn already happening, however in some areas it is actually picking up. That is what is happening here in Charlotte and seems to be happening in OKC from what you are saying.

Also, don't skimp on the house plans. Spend a little more and get something that is quality and doesn't look like a copy of everything else in town. That doesn't mean building something that doesn't fit or make sense in your area, but a home that is unique can be a competitive advantage and bring a higher return. A good design will more than pay for the higher design costs.

Karen Margrave · Answer

@Brennan Zurline all real estate is local is the saying. However the big crash was nation wide, but I think a once in a lifetime occurance.

If there truly are no rehabs to be found, rentals are in high demand at high prices, and the supply of new homes is tight, building new might make sense. BUT the local job market, wages, etc. make a difference.

It's all about supply, demand, and the strength of the local economy.

As to your question, a lot has to do with your expetience. .

Timothy Lewman · Answer

@Brennan Zurline remember that demand for oil and gas will go down in a recession that's looking global in nature.  Less stuff and fewer people moving around means lower demand for fuel.  Don't forget the wild card of President Trump closing the southern border some other nutty trade policy.  Building new houses is very risky at this point in the economic cycle, especially with a highly cyclical industry fueling your buyers - pun intended!  Maybe try wholesaling land, let someone else take the build risk.

Don Gouge · Answer

I remember when I was a kid I lived in an area that was about 2 hours from the coal fields of southern Appalachia. This was the mid to late 70's and the nation was in a terrible recession.  Gloom and doom dominated the media. This was the time of the "energy Crisis". Gas prices were high and coal prices were even higher. The coal fields were booming and coal miners were in high demand and making high wages. Everyone had a new truck and Cadillac. Many millionaires and multimillionaires were made in the coal fields in just a few years while the rest on the country moaned and groaned. You cannot ignore general economic conditions in general but wise people realize that real estate is always local.

Wade Wright · Answer

J Scott not sure if you’ve been to Oklahoma or Texas during oil boom but it’s no recession.  There are travel trailers being setup anywhere they can get utilities. The hotels are booked up for months. Granted some jobs are temporary, but there are a lot of big oil companies in this area.

Joshua Stewart · Answer

@J Scott Just making an observation from what I am experiencing. You have been doing this longer than me and your e-book was a great help. I appreciate your feedback.

Brennan Zurline · Answer

@Wade Wright I am in the Tuttle area and I plan on doing the painting and the tile work to save in the beginning! Like you said the rehab/flips aren’t there and if they are they are gone in a day or they arent even on the MLS!

Wade Wright · Answer

@Brennan Zurline I am just West of OKC and just started new construction on a 4 plex.   The oil and gas industry is booming and housing is hard to find.  I agree that rehab and existing rentals are hard to come by here. I’m also a plumbing and electrical contractor, so I’m able to save some on that end of construction too.

I am looking to start building new construction, opinions?

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