Every Contractor Is Treating Me As A Client And Not As Developer

Every Contractor Is Treating Me As A Client And Not As Developer

CO · Member since 2014 · 166 posts · 44 votes

I'm currently trying to build my first infill spec home. I have most of my soft costs figured out and have a piece of land I'm ready to go under contract on and have vetted. I now need an estimate on the cost of what it would take to build the home I have plans for. This is where I'm having a problem.


I've contacted about 9 general contractors and home builders and they either don't respond or the bid they give me back seems to be priced as if I'm a client building a custom home (I guess I technically am). I make it clear that I'm an investor/developer looking to sell the home once it's built. The plans I have are simple. Cost-effective. I do tell them that I will be building several of these a year if this first home works out but still nothing.

I can see why they're charging me as if I'm a client building a custom home to live in because why should they lower their price just for me? They're getting plenty of business from custom clients so why take my work for less? I guess I'm struggling to find where I fit in here in terms of making a profit. Yes, ill be taking all of the financial risks but so are their custom clients.

How can I better approach these contractors to make it possible to use their services and still make a profit? Or am I just approaching the wrong ones?


Thank you all!

13Reply
303 views

Most Popular Reply

Eastern Michigan · Member since 2018 · 81 posts · 144 votes
5y

When you go to sell the house if an "investor" wants to buy it, despite no history of them being an investor or guarantee of future sales- are you going to lower you sales price?  It would seem to be the same logic you are using on the contractors. 

See this reply in the discussion

113 Replies

Jump to latestLatest
  • CO · Member since 2014 · 166 posts · 44 votes
    5y
    Originally posted by @James Wise:
    Originally posted by @Johnny L.:

    I'm currently trying to build my first infill spec home. I have most of my soft costs figured out and have a piece of land I'm ready to go under contract on and have vetted. I now need an estimate on the cost of what it would take to build the home I have plans for. This is where I'm having a problem.


    I've contacted about 9 general contractors and home builders and they either don't respond or the bid they give me back seems to be priced as if I'm a client building a custom home (I guess I technically am). I make it clear that I'm an investor/developer looking to sell the home once it's built. The plans I have are simple. Cost-effective. I do tell them that I will be building several of these a year if this first home works out but still nothing.

    I can see why they're charging me as if I'm a client building a custom home to live in because why should they lower their price just for me? They're getting plenty of business from custom clients so why take my work for less? I guess I'm struggling to find where I fit in here in terms of making a profit. Yes, ill be taking all of the financial risks but so are their custom clients.

    How can I better approach these contractors to make it possible to use their services and still make a profit? Or am I just approaching the wrong ones?


    Thank you all!

     Saying you're an investor isn't some secret code word where people just go "ohhh I didn't know. Here is the new super special investor code word price." Nobody cares that you think you'll be doing more of these.

    The contractors are treating you as what you are, some dude who wants to build a house. You are no different than any other Joe Schmo off the street.

    Sorry James didnt mean to confuse you! If you read my initial post this is what I said and was asking:

    "I can see why they're charging me as if I'm a client building a custom home to live in because why should they lower their price just for me? They're getting plenty of business from custom clients so why take my work for less? I guess I'm struggling to find where I fit in here in terms of making a profit. Yes, ill be taking all of the financial risks but so are their custom clients."

    My title was just to get you to want to read the thread.

    My question was more asking where does an investor fit in because I read many threads on here stating that they're able to turn a profit using a GC for spec builds! 

    Thanks!

  • CO · Member since 2014 · 166 posts · 44 votes
    5y
    Originally posted by @James Hamling:

    @Johnny L. What follows is coming from me as a GC/Builder with many years in development. 

    First advice, STOP calling yourself a developer! I guarantee it's making bad rapport right off the bat. If your talking to builders the way you are here, chanting "I'm a developer, developer, developer..... because I want to pay a GC to build 1 home". They are laughing at you inside, and outside the moment that phone hangs up.

    A developer, develops, it's that simple. Your a client, your looking to build 1 home, that's NOT developing, not even close. Are you getting zoning approved? Installing roads, water & sewer laterals, negotiating utility easements, doing soil corrections, navigating environmental impact studies???? These are the things a DEVELOPER does, your just some guy asking a GC to build a home, that's a client. How you use that home we, GC/Builders across the world, couldn't care less. Sell it, burn it to the ground, run a hostel or brothel, it means exactly 0 to us. 

    Next problem, you trying to coax them with promises of all the work you will bringing, yet your only asking for 1 single property to be built, immediately the BS meter hits the ceiling for them and you just put yourself in the dog house, seriously. Do you know how many calls per week we get like that? We get conditioned that those blow-hards are waste of time. Now, not saying your full of it, I am telling you that's how you making yourself look. You'd be better off keeping it to the facts of "hey, I'm looking for the right builder to build my home, I got big hopes and dreams but for now it's just this 1 home". 

    Lastly, you gotta get real. GC/Builders are King Sh#t of Tu#d mountain right now, they don't need you or your work, they don't need anyone's really, they rule the day, fact. If your even just a somewhat ok builder your scheduled out at least a year in advance and turning down 19 projects for every 1 that you accept. Exactly how is it in their interest to take your build? That's the brutal truth of it that you need to answer, how is it in their best interest? Because your going to bring them a bunch more work, yeah your bringing sand to a beach, congratulations. No, you gotta make it work for them, it's that simple. 

    Your best option is to partner with a builder, give them a slice of that profit pie, as much as 49%. Fact is builders don't have endless ability to scale, labor is hard enough to get and retain to stay at size more or less scale up even 10%, yeah, good luck at that. And also, everyone IS trying to scale up, it's not that nobody wants to it's that the bodies simply are not there. So each builder is working on a calendar that has a certain capacity of builds, they are saying WHAT builds do I give a slot for, because each slot has 20 different projects begging to be it. Your best smartest move is to suck-up your pride and go kiss the ring, present the offer to be there 51% partner, put up all the capital so they will build the properties. On the upside there gonna not just build but will care about that build because it matters to them AND if you negotiate well you can get it done at net 0 so the 49% wont actually be a full 49% because your only paying cost or cost + overhead, no builder profit on build. 

    But seriously, do yourself a favor and please stop calling yourself a developer, it's nauseating. Developers work there arse off and take huge risk all to create a site from 0 that builders can than build upon, they don't do individual properties, they build SITES, neighborhoods, communities, cities. 

    Thanks for the reply! Ill definitely look into partnership route!

    I appreciate it! From one developer to another ;)

  • Jeff HornbergerBusiness Member
    Investor · Spokane Valley, WA · Member since 2012 · 45 posts · 42 votes
    5y

    @Johnny L.

    I think you’ve seen the writing on the wall with the other posts here but yea if I were to aspire to build and sell for a profit then you have to look at becoming the GC and sub everything out.

    Most developer/builders I know that do this on a High level GC all of there projects. They have to do this so that there is enough meat on the bone on the back end. This allows them to either sell for a profit or refi into long term debt and do it again.

    I agree with the others, the volume of homes would have to be substantial for a builder to reduce his costs at all. Even then you still probably wouldn’t think it was enough.

    Best of luck to you!

    Hornberger Property Management4.2286 Reviews
  • CO · Member since 2014 · 166 posts · 44 votes
    5y

    @Jeff Hornberger

    Hey Jeff!

    Thanks for your response! Yeah I see the common theme. I’ve seen posts on here of investors being able to turn a profit using a GC for a single project but once I ran the numbers I couldn’t find where the profit was. I needed some confirmation on what I was finding and that’s what I got!

    As you said, there needs to be some more meat on the bone and to do that you need to be a GC or get a great deal on the land.

    Appreciate your time!

  • Rental Property Investor · Lapeer, MI · Member since 2019 · 57 posts · 118 votes
    5y

    @Johnny L. Your original post shows that you have a good sense of what you're looking for (to be "treated as" a developer, not just get going -- responses were focused mostly on cost and that's only part of the picture). Since you don't have the financial clout (yet) to get what you need, go back to the ones you already talked to and ask them if they know of anyone in the industry who's just getting started out. Odds are someone's son / daughter / former employee is just getting started out, has the skill but not the clientele. Find a contractor (soon to be developer) who trained with the best, someone who makes sense for your scenario. If you don't want to go with someone just starting out, then bite the bullet, pay premium price and get past your 1st project.

  • General Contractor · Denver, CO · Member since 2016 · 63 posts · 24 votes
    5y

    Hey Johnny, what area are you trying to build in? I am a Denver based GC that works with primarily developers. 

  • Property Manager · Land O lakes, FL · Member since 2016 · 72 posts · 61 votes
    5y

    @Marc Winter Hi Marc, I am very interested in learning more about manufactured homes. Any suggestions or factories I can visit here in central Florida? Thanks in advance.

  • CO · Member since 2014 · 166 posts · 44 votes
    5y

    @Jonathan Harris

    Hey Jonathan!

    I’ll pm you.

    Thanks!

  • Rental Property Investor · Colorado Springs, CO · Member since 2018 · 682 posts · 729 votes
    5y

    @Johnny L.

    Johnny, I have relationships with several GCs here as development is my primary business and it’s all about how you approach them.

    What’s your value proposition? Most of the general contractors I know are great at building houses but do not know the financing/investing/sales side of the business.

    I’ll use one of our GCs we’re currently building with as an example. When my partner and I bring him an infill lot, with the construction financing already arranged and a buyer (with cash and a prequal for permanent loan) interested in building on our lot - suddenly he’s very interested in doing business with us.

    It’s all about providing value, feel free to message me if you’d like so we can talk offline in more detail.

    Dan

  • Flipper/Rehabber · Canton, GA · Member since 2021 · 32 posts · 27 votes
    5y

    @Johnny L.

    Hey Johnny my background is in construction. We hear stuff like this all the time from prospective customers. If this is your first build there’s no guarantee you’re going to have a second. Contracting is one giant headache and a huge pain in the *** regardless of how simple it cost effective a job may seem on paper. Your best bet is to hang out at Home Depot and look for independent guys that hold a general contractors license in the state what you’re trying to build and see if they’ll work with you

    Best of luck

  • Spokane, WA · Member since 2017 · 23 posts · 27 votes
    5y

    It sounds like you've got plans and are approaching this as a "custom build" even though you've got the designs drawn up in an economical way.

    May I suggest that you look for builders in your area that have, for lack of a better word, cookie cutter homes that they build?  For example, in my market there are a few pre-fab construction companies that have factories where they make large parts of the home.  You can't bring these guys a set of plans, you have to pick their off the shelf models.  But the result is that you enjoy some of their economies of scale.   There are also traditional construction companies that have a menu of houses they offer, with pricing that is very transparent.

    I think you will run into fewer problems if you find a company that continually builds one particular design, and just hire them to do what they do.  If you come to someone with plans, I think the price is likely to be higher.  

    One company in my market I am consider using for a few upcoming projects is Simplicity Homes.  You can google them and see how they have different options available, and how the prices are very competitive.  I've found similarly competitive prices from other companies that offer this business model.  If they have a mass produced house that fits your needs, you're likely to do well.

  • David BrucePro Member
    Flipper/Rehabber · Kailua Kona, HI · Member since 2016 · 24 posts · 35 votes
    5y

    @Marc Winter got a website ?

  • Real Estate Broker · Northeast PA · Member since 2017 · 2k+ posts · 2k+ votes
    5y

    @David Bruce, you can usually find websites if you check the person's bio here.  Mine is    www.LandmarkMgmtServices.com

  • CO · Member since 2014 · 166 posts · 44 votes
    5y
    Originally posted by @Cathy Malmrose:

    @Johnny L. Your original post shows that you have a good sense of what you're looking for (to be "treated as" a developer, not just get going -- responses were focused mostly on cost and that's only part of the picture). Since you don't have the financial clout (yet) to get what you need, go back to the ones you already talked to and ask them if they know of anyone in the industry who's just getting started out. Odds are someone's son / daughter / former employee is just getting started out, has the skill but not the clientele. Find a contractor (soon to be developer) who trained with the best, someone who makes sense for your scenario. If you don't want to go with someone just starting out, then bite the bullet, pay premium price and get past your 1st project.

    Appreciate it Cathy! Makes plenty of sense to me! Im definitely going to try this out and see if I can find and partner with a contractor like you explained. 

    Thank you! 

  • CO · Member since 2014 · 166 posts · 44 votes
    5y
    Originally posted by @Daniel Haberkost:

    @Johnny L.

    Johnny, I have relationships with several GCs here as development is my primary business and it’s all about how you approach them.

    What’s your value proposition? Most of the general contractors I know are great at building houses but do not know the financing/investing/sales side of the business.

    I’ll use one of our GCs we’re currently building with as an example. When my partner and I bring him an infill lot, with the construction financing already arranged and a buyer (with cash and a prequal for permanent loan) interested in building on our lot - suddenly he’s very interested in doing business with us.

    It’s all about providing value, feel free to message me if you’d like so we can talk offline in more detail.

    Dan

     Hey Dan! Yeah ide definitely like to pick your brain a little bit! Ill PM you. I appreciate your time and reply!

  • CO · Member since 2014 · 166 posts · 44 votes
    5y
    Originally posted by @Matthew LoPiccolo:

    @Johnny L.

    Hey Johnny my background is in construction. We hear stuff like this all the time from prospective customers. If this is your first build there’s no guarantee you’re going to have a second. Contracting is one giant headache and a huge pain in the *** regardless of how simple it cost effective a job may seem on paper. Your best bet is to hang out at Home Depot and look for independent guys that hold a general contractors license in the state what you’re trying to build and see if they’ll work with you

    Best of luck

     Thanks for your reply Matthew! I like that idea. It makes sense to find a contractor like this for a first deal!

  • CO · Member since 2014 · 166 posts · 44 votes
    5y
    Originally posted by @Kyle Varner:

    It sounds like you've got plans and are approaching this as a "custom build" even though you've got the designs drawn up in an economical way.

    May I suggest that you look for builders in your area that have, for lack of a better word, cookie cutter homes that they build?  For example, in my market there are a few pre-fab construction companies that have factories where they make large parts of the home.  You can't bring these guys a set of plans, you have to pick their off the shelf models.  But the result is that you enjoy some of their economies of scale.   There are also traditional construction companies that have a menu of houses they offer, with pricing that is very transparent.

    I think you will run into fewer problems if you find a company that continually builds one particular design, and just hire them to do what they do.  If you come to someone with plans, I think the price is likely to be higher.  

    One company in my market I am consider using for a few upcoming projects is Simplicity Homes.  You can google them and see how they have different options available, and how the prices are very competitive.  I've found similarly competitive prices from other companies that offer this business model.  If they have a mass produced house that fits your needs, you're likely to do well.

     I appreciate that suggestion! Thats a very good idea to utilize their plans that they can build much faster since they have experience. Im going to price out some of the homes in my area from these types of builders! 

    Ill check out SImplicity Homes as well. Greatly appreciate your reply and your time Kyle!

  • Cincinnati, OH · Member since 2020 · 4k+ posts · 3k+ votes
    5y

    @Johnny L., as you note, unfortunately, you are a client.  

    How do you make money here? you subcontract everything to avoid the builder/gc markups, which often are 20% of costs or more.  Find and manage foundation, framing, insulation, roofing, electricians, plumbers, drywallers, carpenters, flooring, HVAC, windows, etc on your own, and don't pay for someone else's time to do the same.

    Many builders in this market are also doing their own spec builds.  So their prices are accounting for their own time, costs, profit AND opportunity costs of delaying their own spec builds.

  • Real Estate Agent · Portage, MI · Member since 2016 · 4 posts · 2 votes
    5y

    @Johnny L. Keep looking for another contractor, maybe look for a younger one trying to make a name for himself you could grow with. Or start flat out ask them, if I pay your full price this time, and things work well, are you willing to give me a break ok future projects, and if so, how much?

    One of my primary contractors started working for me when he moved into town, my other primary contractor I paid high prices to do jobs when I really needed them, then as the realationshio built over a few projects, I started giving them more and more and they discount their price for the constant work they don’t have to work for.

  • Real Estate Agent · Fort Lauderdale, FL · Member since 2018 · 360 posts · 213 votes
    5y

    Why dont you offer an equitable deal?  for the trial ? when you sell it.... 

  • Rental Property Investor · Fremont, NE · Member since 2016 · 23 posts · 5 votes
    5y

    @Johnny L. First problem your on Colorado. I’d suggest building somewhere else. If that’s not an option be your own GC. However I think your still going to run I to issues getting the work done in a timely fashion.

  • Philadelphia, PA · Member since 2015 · 12 posts · 8 votes
    5y

    @Johnny L...easy solution. Just use referrals only from other developers🤷🏿‍♂️

  • Contractor · Canton, GA · Member since 2015 · 107 posts · 81 votes
    5y

    @Johnny L.

    I’ll be swift. I’m a builder and remodeler. My duties have placed me as the head estimator. You should pay a modern live estimator to build a new construction home with specific products in that home . You’ll be amazed how far off you are on budget and time( many materials are on back order - ie windows). Get all of your dominos in a row. Then Follow this like a road map for your next adventure. If a contractor sees you have plans and costs align he knows this will not be a 3 month drag.

  • Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes
    5y

    The main question you are asking is how do you make money in this current environment. You need to buy or create the land at a price that the construction will deliver the profit at current retail pricing for new builds. You can push the market on the houses right now due to pent up demand especially if you have the right location and the right product. If you can get a GC on board the key will be delivering units while the market is hot so you can push value and make it up on volume however things can turn on a dime if rates go up so you need to be careful and make sure you have multiple exit strategies and perm financing in place if you don't sell.

  • Developer · Tucson, AZ · Member since 2017 · 13 posts · 7 votes
    5y

    Johnny,

    You’re in a tough position. You have a number of hurtles to overcome. You are foraging into the wild. What I mean is experienced builders can smell a newbie a mile away. In today’s market they don’t have time or energy to hand hold. 
    Private message me and I’ll give you a quickie primer on what to say and how to say it. Also, let me take a peek at your plans and bid specs. If they’re junk, you will struggle... guaranteed. All I do is housing as an architect and my two sons are new & successful builders. 
    Best wishes,
    Jon 


Join the conversationCreate a free account to reply, vote on answers and follow this thread.