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You'd have to find a builder. After 2008, that industry re-tooled and now there are considerably fewer builders working in residential development. And even t

You'd have to find a builder. After 2008, that industry re-tooled and now there are considerably fewer builders working in residential development. And even those only want to work with developers on building new subdivisions, not work with individuals on single homes.

bananapear 5y ago
What do you mean by "re-tooled"? What changed in 2008?
- StevePerkins 5y ago
  Re-tooled in the sense of adapting their organizations to pursue commercial development opportunities more so than residential development (e.g. hiring more people with networks and experience in that market). The 2007-2008 crash wiped out a lot of over-leveraged residential developers, and individuals building single homes. From conversations I've had with people in that industry, their sense is that we learned next to nothing and that a repeat of that experience is inevitable. So commercial development became seen as more desirable and less risky. Now that I think about it though, I haven't had any conversations since COVID! I wonder if the rise of remote work will have enough impact on commercial development to flip that calculus again.
- syedkarim 5y ago
  We hired a builder about five years ago to build our home. What we found after talking with a dozen (or more) local custom home builders was that the math doesn’t make sense for lower-cost custom homes. A custom home, in this case, is anything that is not a part of a development or subdivision. The GC (general contractor/builder) charges about a 20% management fee on top of all costs that are paid to build the house. GC have minimal full-time staff of their own and use sub-contractors for most everything. Builders with really good reputations might charge up to a 30% management fee. The net income, after the builder’s operational costs (insurance, taxes, overhead) are 10% of the home cost if the management fee is 20%. A builder can only take on so many projects per year. Typically three or four. The amount of work that goes into managing a $300,000 project (not including land) is mostly the same as one that costs $600,000 or $1,200,000. Why make $30,000 per project when there’s an opportunity for $60k or $120k? After 2008, I believe banks started being much less willing to provide construction loans to builders, as many went upside down on projects when the market crashed. The bank doesn’t want to repossess a halfway-done new construction project, which is the hardest thing to resell. There are fewer speculative custom homes being built now, compared to before 2008. And builders are no longer taking any kind of risk on projects, so their customers need to acquire financing on their own. Relatively few banks offer reasonably priced construction loans. We were required to have the land paid in full and also bring 30% as a down payment for the construction loan.

bananapear 5y ago

What do you mean by "re-tooled"? What changed in 2008?

StevePerkins 5y ago
Re-tooled in the sense of adapting their organizations to pursue commercial development opportunities more so than residential development (e.g. hiring more people with networks and experience in that market). The 2007-2008 crash wiped out a lot of over-leveraged residential developers, and individuals building single homes. From conversations I've had with people in that industry, their sense is that we learned next to nothing and that a repeat of that experience is inevitable. So commercial development became seen as more desirable and less risky. Now that I think about it though, I haven't had any conversations since COVID! I wonder if the rise of remote work will have enough impact on commercial development to flip that calculus again.
syedkarim 5y ago
We hired a builder about five years ago to build our home. What we found after talking with a dozen (or more) local custom home builders was that the math doesn’t make sense for lower-cost custom homes. A custom home, in this case, is anything that is not a part of a development or subdivision. The GC (general contractor/builder) charges about a 20% management fee on top of all costs that are paid to build the house. GC have minimal full-time staff of their own and use sub-contractors for most everything. Builders with really good reputations might charge up to a 30% management fee. The net income, after the builder’s operational costs (insurance, taxes, overhead) are 10% of the home cost if the management fee is 20%. A builder can only take on so many projects per year. Typically three or four. The amount of work that goes into managing a $300,000 project (not including land) is mostly the same as one that costs $600,000 or $1,200,000. Why make $30,000 per project when there’s an opportunity for $60k or $120k? After 2008, I believe banks started being much less willing to provide construction loans to builders, as many went upside down on projects when the market crashed. The bank doesn’t want to repossess a halfway-done new construction project, which is the hardest thing to resell. There are fewer speculative custom homes being built now, compared to before 2008. And builders are no longer taking any kind of risk on projects, so their customers need to acquire financing on their own. Relatively few banks offer reasonably priced construction loans. We were required to have the land paid in full and also bring 30% as a down payment for the construction loan.