5.
Re: all in one construction company Oct 31, 2007 3:28 PM
in response to:
momthebuilder
It can be a very profitable business. It isn't profitable for most of the people who get into it because they underestimate the overhead costs of running a business and having employees, and because their initial cash flow projections reflected a best case scenario (which never happens in construction).
The individual, couple, or family who decides to build a custom home has to be one of the most difficult-to-please customers in the world. After all, it's probably the largest purchase they'll ever make, and they are going to live in it for years to come -- so their expectations are that everything be absolutely perfect. In home building, the gap between " absolutely perfect" and "accepted/passed/to code" is enormous, and a custom builder can spend a lot of money and time trying to close it.
Custom homes usually mean at least some custom materials -- things you can't just pick up at Home Depot. What if the customer insists on facia stone from Italy, and the transport is delayed for six months? What if they want an innovative composite on the kitchen and bathroom counters that your crew has never worked with? Custom homes are often sited on unusual locations, where access, drainage, environmental impact, etc. are all far more complex than tract housing. What if the county requires you to tear out and redo all the landscaping, sidewalks, and driveways because of an unforeseen drainage problem -- and you can't close on the home (and get paid) until you do? What is someone steals all the mechanical equipment (A/C, furnace, water heater, etc.) from the job site?
A custom builder in my area is dealing with all of the above on just one house (he bid the home for $880K, anticipating a $160K profit -- of which $144K has been eaten away by the problems above, and by closing the gap between "to code" and the buyer's idea of "perfect"). He is now five months behind and in danger of losing other jobs he had lined up.
None of this is intended to discourage you from getting into the business. It is meant to encourage you to plan very carefully, especially since you have the time now to do so. Best of luck to you!
