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

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

Johnny L.
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!

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Account Closed
Eastern Michigan · Member since 2018 · 83 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. 

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  • Matthew Paul
    Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes
    5y

    Land prices are up , lumber is up , labor is up due to demand , permits take longer due to covid , as are inspections , delivery times on materials are behind . 

    The good news in interest rates are low . 

    The bad new is you dont know where we will be in 6 months .

    Now would be a difficult and risky time to do a new construction without established connections . Even a fix and flip wont be easy or cheap . With rates low and demand high for houses deals on fixer uppers are slim , you are competing with end buyers who watch too much HGTV . 

    Good Luck 

    0Reply
  • Michael Arnold
    Grand Rapids, MI · Member since 2017 · 71 posts · 16 votes
    5y

    You already knew the answer to this. Builder doesn’t give a crap about your development strategy. It’s all the same amount of work for builder along with labor and materials (you know this). Your margin later doesn’t matter to him now.

    Sure you could try and negotiate a lower fee for repeat business but you’re not there right now. 


    0Reply
  • Jonathan R McLaughlin
    Rental Property Investor · Boston, Massachusetts (MA) · Member since 2016 · 2k+ posts · 2k+ votes
    5y

    this is why contractors run screaming when they hear the word "investor" I mean who would want to put up with being nickel and dimed on everything and being "negotiated with" right out of the gate?  

    1Reply
  • William Moya
    Property Manager · Land O lakes, FL · Member since 2016 · 72 posts · 61 votes
    5y

    @Johnny L. I see your point. To clarify there is a position for everyone on the process. But not required in every scenario.

    Developers take raw land, put in the infrastructure like roads, utilities to the site and devide the land into smaller lots/parcels.

    Builders buys the small lots/parcels from the development to build their homes and resell them with their own sales staff or outside realtors.

    Builders usually buy a bundle of lots from the developers

    Smaller Investors usually buy one off individual lots and build a single lot/parcel at a time. (SFR, Duplex, Quadplex)

    Contractors are hired by developers or smaller investors to do the build. You have to be careful because GC's may have to over estimate these days due to the cost of materials (lumber) and cost of labor. I've recently found that even the ones with little experience are charging more and I do agree that you get what you pay for, in this environment your better have a contract with dates and have in the contract teeth incase they decide to take in other projects and delay yours. This can be very costly to your bottom line.

    Not all GC's think the same way, they typically do not have the same training as an Investor and therefore dont understand the process. I've seen GC's partner with Investors and this one case the GC over spent thinking the more he put in the house the more money he would make. Boy was he wrong.

    Realtors obviously list to sell, get their commission and can be a valuable resource to determine the market conditions, what a property should sell once its built. What kind of finished you should po it in depending on the area, etc

    The investors job is;

    - Find a great priced lot(s), negotiate price & terms.

    - Find a qualified GC, (Lic'd & insured) with contract of the job, negotiate price and timelines.

    - Find all trades, negotiate price & timelines (Roofer, Painter, plumbers, electricians, etc)

    - Find a Architect, negotiate price

    - Find an engineering company- shop price

    - Find a survey company negative price

    - Find good realtor that works with investors.

    Nots:

    - You dont always need a GC, but when you do pay for the permits, the risk of getting caught without them is not worth the risk.

    - Just like we have to go through a ton of leads, offers, etc. For a property... we have to do the same with our power team.

    I hope this helps. Happy Investing

    1Reply
  • David Avery
    Flipper/Rehabber · Phoenix Arizona · Member since 2020 · 1k+ posts · 686 votes
    5y

    Just a thought, will your town, city, zoning accept a U shape property maybe 6-12 doors with an inner court that is really fancy.?

    2 BD/BATH.  

    You have a democrat  governor right?

    Could do it on a 50,000 sq lot. parking in the rear.

    Rent to "skinny jeans all day long ."  Rent $1400-$1600 or more if your in Denver.

    Sale price $199,000- $275,000  all day long.

    May be a certain GC that may partner on this idea!

    0Reply
  • Joseph Hummel
    Rental Property Investor · Crystal Bay · Member since 2019 · 59 posts · 38 votes
    5y

    @Johnny L.

    Hi Johnny- congrats on your future building.

    As a GC I understand what it takes to take a project from dirt to done. You can imagine from all the work you already put in as the owner... is nothing compared to what the GC has to do just to put together a bid, it takes months to get an accurate bid...and that’s if you already have plans and engineering, not to mention a schedule of finishes already chosen (every color,detail,handle,tile etc). So when you ask a GC to bid that- keep in mind he would be risking losing months of their time- not a fun prospect, and if you find someone super excited to jump on it, it may be because they are not busy because they are either new or not reputable and you won’t get anything accurate, expect multiple change orders for “unexpected” items. And if you’re choosing someone based on bids you’re doing it wrong. Find a GC with a good reputation and cut him in on your deal. Do they have a crew and subs needed to complete? Labor in trades is short and prices are inflated now. We’ve built many $million+ spec homes and always get equity because it’s a higher risk- and margins are already tight. Cost to build and sales price are getting very close depending where you’re located.

    1Reply
  • Robert Beardsley
    Member since 2020 · 117 posts · 84 votes
    5y

    you are a client one house doesn't make you a developer. you might have goals to be a developer but until you prove it to the builder you are a client. pay them to build 5 houses at one time and you might get a better deal

    0Reply
  • Chris Bown
    Seattle · Member since 2019 · 5 posts · 1 vote
    5y
    Originally posted by @Marc Winter:

    I've come across the same situation several times.  

    That's when started to investigate manufactured homes.  

    Please don't look down your nose at these--they are NOT trailers or double wides.  They are manufactured in a huge factory to spec.  They can be set on a foundation, and all you need is a small setup crew, plumber and electrician.  Done.  

    Pricing is the same or better than stick-built.  I suggest you take a tour of some manufacturers--it will blow your mind.

    Do you mean modular?

    0Reply
  • Marc Winter
    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

    0Reply
  • Brendan Lawrence
    Rental Property Investor · Bend, OR · Member since 2020 · 33 posts · 18 votes
    5y

    @Johnny L.

    Hey Johnny!

    For what this is worth, from the contractors view, assuming I got a call from a person in your position:

    Most experienced contractors probably already have a set of prices that they’re accustomed to charging for each task. Bidding and writing up jobs is exhausting and boring, and we like working with our hands, not fine tuning estimates (which we have to do, but hopefully as little as possible). But it’s a balance between trying to optimize profit, feeling fairly compensated, and making the home owners feel comfortable with what they’re spending.

    At the end of the day I have my family to pay for, my own aspirations, and theirs, and our well being comes first. So a new person in my list of customers isn’t going to be sounding any alarms for me that I need to be treating them any different than the ones I’ve had for years now.

    As contractors we spend a lot of time with you. We see you in the morning usually, again in the evening, and during all those inbetweens where a lot of general small talk will happen. Many people open up with time and this is great. But this also means that somebody sharing aspirations with us to bring us lots of work.... we’ve heard this before. Picture how often the “can I buy you a beer?” Line is used to pick someone up at the bar each night, and the lady has heard it a million times. That’s how contractors view the “I can bring you lots of work” pick up line.

    That said, I think you get what you need with time. You probably won’t get an experienced contractor to lower anything for you on your first deal. Consider it cost of entry. But you call again for the second.... now you’re showing you’re real and will catch their attention. I would assume even at this point you could see lower prices start to happen. By the third, you should be solid. Keep in mind you may have to do this dance with each individual contractor you start a relationship with.

    Here’s what I would try to work towards: after you have a solid understanding of prices, and your system gets more solid, Come up with your own pricing. If it’s fair, we love this. Itemize EVERYTHING. if you’re doing flooring, put price per square foot, include price per lineal foot of transition strip, demo, etc..... have contractors come in and estimate based on YOUR price out, or, simply say that this is what I’m paying for this job based off these rates, do we both agree I measured it out correctly, and that this is accurate?

    We have contracts with large box stores and when you’re really busy this is a great way to grow our business. We make less, technically, per job. But the rates are fair, and I don’t have to bid anything! I can see the numbers on a page, skim it, say yup this seems right, and then put the job on the schedule. The ease of acquiring the job is worth the discount in payment.

    It will make it easiest for both parties with time, and I guarantee you’ll keep contractors around with the ease it will bring.

    Well the kids just woke up so time to run, but hopefully this helped!! Good luck!!

    2Reply
  • Greg Dickerson
    Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes
    5y

    Real estate development is a lot more than just buying raw land dividing it up and selling lots. Real estate development includes renovation of existing structures and properties, building any type of structure ground up, and raw land development. It’s maximizing density, opportunities, and unlocking highest and best use. It’s entrepreneurial creative and includes a lot of different aspects of the real estate business.

    1Reply
  • Merle Sauvola
    Contractor · Greer, SC · Member since 2019 · 19 posts · 8 votes
    5y

    @Johnny L. As a developer/builder/business owner. In my market, a developer is considered one who buys a tract of land, divides it, puts in roads if needed (gets it 100% ready to build), and sells the lots off to builders.

    Developers see roughly 30% net profit, but time is a big factor as a development takes anywhere from 4-18 months (4 is road frontage, and a couple lots).

    Coming from the builder side. We did a couple “investor split” houses last year. Investor put the money up, we built the house, and split profit after the sale. But with the market as hot as it is, it’s not really worth our time right now to do that.

    Maybe look for a newer builder that doesn’t have the financial backing to get their own thing going. This will be a fine line because they may not have a proven track record on build times etc.. so there is always a risk.

    0Reply
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