What do you think about starting a home building business as a first step to running my own development deals? I think it may be a good place to start because it doesn't require as much capital to start out. I could start just doing a few and then scaling up from there, and then venturing into land development or multifamily development down the line. I was reading about Michael Stern who started by building SFH, and I'm sure there are other RE entrepreneurs who have started out this way. Have any of you considered doing something like this or know someone who has?
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Yes I consider this very frequently. At my old bank we had lines of credit to a couple of home builders that were started this way. Have someone provide the upfront equity to build a couple spec homes, carry the fees you collect into your own equity, repeat and scale. The biggest risk is construction and you have to know how to actually build a house. In order to see any material profit, you have to be your own GC. Land development is very entrepreneurial - if you can find a land owners to contribute the land on seller carry back note, you can do deals with essentially no skin in the game. Land development is akin to the development talked about on these forums and home building is more akin to manufacturing. Builders that develop their own land can make money hand over fist.
Interesting. Do you know of any resources where I could learn more about land development? I know of guys who have made a killing doing residential development where they sell the lots to builders, but I always thought of that as requiring a large amount of capital.
I don’t know of any literature and most independent land developers keep very low profiles. Email some guys at a local builder that engages in land development to ask if they want to get lunch and talk about the industry.
I'll be dead honest, i'm not savvy at all with the financial side of it all, but from a process/design perspective, Dewberry wrote the book on land development. Can be a pretty dry read, but this is the land development bible that everyone that works at a land development consultancy uses.
https://www.amazon.com/Land-Development-Handbook-Dewberry/dp/0071494375
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I'd advise against this unless you actually know how to physically build the house or have experience in the home-building industry. New construction development risks can be extremely high, housing can be volatile, construction costs are out the wazoo, and small time contractors/designers are notoriously bad. If you've got the experience, then by all means, not a bad way to make money.
I've seen it done as a mom and pop shop, but they were experienced small scale design-builders that just happened to keep some of their portfolio on hand. I've worked labor alongside residential subs/GCs and the level of professionalism and "get it done" varies significantly. There's a lot of reward with the risk, but you'll get cooked by your builders if you're not savvy.
As you can see from the above posts, its obvious to see where things can go downhill. Most statistics are bs but the lack of skilled labor is not an exaggeration. In an ideal situation, if you lack the construction knowledge the best way to go about it would be to partner with someone who has that experience to act as a superintendent/apm etc.
I have not looked too much into land development, but I was offered an opportunity recently to start up a construction biz, the person that offered would be the on-site guy, while I'd handle the office/biz side. Even then i'm still skeptical due to the lack of quality in some of these subs. In that scenario I can see land development working, assuming either partner has some relationships in the industry.
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