How to Become a Professional Home Builder – Part I

How to Become a Professional Home Builder – Part I

Over the years, many of our student builders have asked pertinent questions such as what size home should I build; what do I put in it; where do i build it? Looking back, it’s easy for me to make these decisions now, but when I first started building in 1975, it was trial and error situations. And my hindsight is crystal clear. It’s very easy for me to look back and see things I wish I knew when I started building. This is what you will learn in this article.

You will learn the pros and cons of being a speculator or spec builder (as opposed to a contract builder). If you’re not familiar with these terms, a spec builder is someone who will select a site, choose a design, build a home, and then sell it to a customer. A contract builder is a builder you hire to build a home for you. By the way, custom building is how I suggest you start instead of building a home for someone else. I’ll explain why later.

I’ll start by showing you how to be one of the top builders in your area, even if you’ve never built a home before. I will expand on this information by discussing points that are unique to spec construction. Next, I will discuss points that are unique to contract construction and points that apply to both specifications and contract construction.


I want to emphasize that when starting your construction business, you need to separate your business from your personal life. In the early 1970s I was involved in commercial real estate sales. I barely survived a great recession. Almost everything I owned was in my name and most of it was returned. If I knew then what I know now, I would have kept that big house, that Mercedes, and that plane.

There are many things that can happen to you in the construction industry, some of which you have absolutely no control over. According to the 2008 annual report of the National Center for State Courts, in 2007 Americans filed more than 90 million lawsuits, more than a third of which were civil cases. This does not include the volumes of legal disputes that were settled before a lawsuit was filed. Based on the sheer number of legal disputes that arise, in and out of court, it’s safe to say that most Americans are at risk of being embroiled in a legal dispute at some point in their lives—for many, more than once. This is especially true for those who work in occupations with high vulnerability to lawsuits such as doctors, dentists and, yes, especially construction workers! You should invest in hiring professionals to help you protect your assets. It’s easier than you think. This is one time you can’t delay. I can tell you some great horror stories, but I don’t want to scare you so early in the game. Anyway, don’t live in fear of what might happen. You only lose if you don’t play.

I. Speculative building

A. How to become one of the top spec builders in your area

Before you buy a lot, before you buy any house plans, the first thing I want you to do is assemble your success team. I call this the Henry Ford philosophy. If you read about Henry Ford, you will learn that some people considered him illiterate. He once sued a Chicago newspaper that wrote an article claiming he was illiterate. In the case, Henry Ford emphasized that he did not need to know everything about everything because he hired experts to help him in everything he wanted to do. This left his mind free and clear to do all the things he really knew how to do. Well, I’ve learned this philosophy myself over the years. I realize that there is not enough time in this life to do everything. I now hire experts to help me make decisions and this has been a positive factor in my home building success.

Your success team should include the following:

1. Real estate agent

2. Landscape architect

3. Artist/architect

4. Kitchen/bathroom designer

5. Interior designer

6. Lighting designer

I will discuss each of these team members in detail as we go through the course. Do not worry. When you’re starting out, you don’t need the best. These team members are more accessible than you might imagine.

B. Getting your first loan

Let me tell you a story. And the further you get from that story, the harder it will be to borrow money to get started.

Let’s say you work for pay. If you are not employed, but instead self-employed, then you must have a high credit score or file tax returns for the last three years to qualify for the loan. If you are currently renting a home or apartment and want to build a home for yourself, you are a prime candidate to borrow money to build a home for yourself. So you get the money. You are building a home. You market it during construction. You sell it. You go to the bank. You borrow money under the same premise. You get the money. You are building a home. Put it up for sale. Sell ​​it. Do it over and over and pretty soon you’re walking into the bank and the banker looks at you and says, geez, you should become a homemaker. And you are.

This is the easiest way to get started. Most builders I know started in the industry this way. This method will also provide you with the least risk. Why? Because if you don’t sell the home, you’ll just move into it. In turn, this will make it easier for you to sell, as a furnished home usually sells faster than an unfurnished home. Eventually you will sell it and you can start the process all over again. The bad news is that you may be moving around a lot. I remember a couple who wanted to own a free and clean home. They used this method in five homes, putting their winnings back into each home. Their sixth home was built entirely with cash. They owned it free and clear and got out of the construction business. They just wanted to do whatever it took to own their home free and clear.

The further you stray from the above scenario, the harder it is to get the initial loan when you’re just starting out.

For example, let’s say you currently own a home and want to borrow money to build another home for yourself. The banker will usually be negative. They tend to look at the flaws and may comment on something like that. “Sounds really good, but you own a home right now. What are you going to do with your current home?” Your response is, “I’m going to list it for sale while this new home is being built, and then sell it.” The banker comments, “Sounds pretty good, but what if I don’t sell your current home?” The banker is usually looking at the downside—that is, you’ll be left with two home payments. If you are able to show that you can afford two home payments, you may very well get the money.

You should always have a happy ending to your story that you tell the banker. Never look at the banker and say, “Gosh, I’m only borrowing 70% of appraised value. If the bank were to repossess the home, the bank would have a deal. The bank can sell the home and make a good return on its investment.” Don’t ever use that kind of logic on a banker. Bankers don’t want to be in the homeowner business. Don’t ever assume or even think in your mind that this will happened.

If you are not employed or have a problem with your credit or no money, your next best method is to find an investor who will participate in a joint project with you. I’ve done this on many large projects when I didn’t have the finances to afford it myself. What I usually did was to structure the investment so that the joint venture partner put up very little or no money. Investors really like this! What I needed was their strong financial statement. Understand, there are many investors, such as doctors, who have huge financial statements but very little money. So if you can structure the investment to require very little or no cash, it becomes a relatively easy investment to sell. When I have worked with a joint venture partner, after the sale of the investment, the investor will be refunded all the money they have invested, plus a fair interest rate that is agreed upon in advance. Any remaining profits will be split 50% to me and 50% to the investor. Normally, in a situation like this, the investor would allow me to deduct any out-of-pocket expenses, but understandably wouldn’t allow me to take any salary.

You wouldn’t believe some of the wild, crazy, ridiculous investments requiring large sums of money I’ve seen these people put money into. Many of them have the same luck in the stock market as I do. These people should feel blessed that you have come into their lives with a viable real estate investment. I found these people by talking to friends, going to investment seminars, and placing ads in the paper.

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