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If a group of investors approached you to build homes
Posted on 1/16/13 at 2:19 pm
Posted on 1/16/13 at 2:19 pm
Spec homes. They want you to pick lot/subdivision to build in. Basically let you do what you want. What percentage do you charge them? Do you take a percentage of what the house sells for or a percentage of the build cost?
Posted on 1/16/13 at 2:25 pm to whit
Need way more details, but most contractors get paid a percentage of the construction price usually in the 10-20% range.
Posted on 1/16/13 at 2:34 pm to snake2985
quote:
Need way more details, but most contractors get paid a percentage of the construction price usually in the 10-20% range.
What other details? I'm asking because I'm curios. Where do the investors make their money? Strictly off of the sale price? What's the average ROI for them?
Posted on 1/16/13 at 2:38 pm to snake2985
I'd start with %, I imagine they are looking for flat fee.
Posted on 1/16/13 at 8:19 pm to ItNeverRains
(no message)
This post was edited on 1/23/13 at 7:54 am
Posted on 1/16/13 at 9:31 pm to whit
I usually approach it with a % of the market value of the build. In this market though, I am pretty flexible and have built spec homes for investors for a flat fee if it is more than one home. I'm in talks at the moment about doing a few duplexes and that can go in a few more different directions.
This post was edited on 1/16/13 at 9:32 pm
Posted on 1/16/13 at 9:48 pm to Northgate
quote:
Northgate
To every question you asked, the investor. Lets say I get the plans/design. I bid it out to every sub(3 of each trade) and put the prices together. I'll build it to the numbers agreed upon(after sitting down with investors and showing them every estimate), the rest is their risk.
Posted on 1/17/13 at 8:11 am to Northgate
quote:
Who is putting up the money, or signing the note?
Investors is my guess.
quote:
Whose house is it if it doesn't sell
Tricky, but my guess is investors, I'll tackle that next.
quote:
Who gets less is it sells for less than expected?
Investors per % of initial investment, although I imagine this is investment group with llc so company backed by investors, as builder would have contract for hire.
quote:
Whose loss if it sells for less than the cost to build?
Highly unlikely, but investors.
quote:
Who buys the lot?
If I were developer I would subordinate the lot, any activity is good activity in new construction, and a spec going up in a n'hood shows confidence, people are risking $ that this hood is worth building in without an established buyer. Plus, if SHTF, you can pay off construction loan with subs, deed in lieu, and sell it and make bank, or rent it, per HOA bylaws
Posted on 1/17/13 at 5:49 pm to whit
The only people that generally make money on these deals are realtors in my experience. Back in the robust market there was money, but now u basically have to find a good deal on a lot, keep costs low, and hope there is some meat on the bone after it sits on the market if there are holding costs.
Posted on 1/17/13 at 9:34 pm to whit
In my experience, North Alabama. Spec money is hard to get right now, so investors have more leverage. Generally speaking, the investor is taking the financial risk, the builder is taking the warranty/public risk.
You take sales price of the home, subtract all costs associated with the deal (including interest payments, loan acquisition costs, realtor fees, lot cost, etc.) Whatever is left (typically 15%-30% of the purchase price), is usually split 50/50.
As long as the contractor is a good builder and many warranty issues don't arise, it's generally a great deal because the contractor isn't taking on the financial obligation.
The biggest question is time on the market. The carrying costs can rack up over time, so if you have to sit on a house for a while, that 15%-30% shrinks a lot.
They're definitely not the "only" ones making money.....otherwise no one would do them. I've definitely seen it happen before, but I wouldn't consider it the norm by any stretch. They make money, until there's a better way, it's just a cost of doing business. The investor and the contractor should make significantly more money than the Realtor (each) in the deal, or there's something wrong.
You take sales price of the home, subtract all costs associated with the deal (including interest payments, loan acquisition costs, realtor fees, lot cost, etc.) Whatever is left (typically 15%-30% of the purchase price), is usually split 50/50.
As long as the contractor is a good builder and many warranty issues don't arise, it's generally a great deal because the contractor isn't taking on the financial obligation.
The biggest question is time on the market. The carrying costs can rack up over time, so if you have to sit on a house for a while, that 15%-30% shrinks a lot.
quote:
The only people that generally make money on these deals are realtors in my experience.
They're definitely not the "only" ones making money.....otherwise no one would do them. I've definitely seen it happen before, but I wouldn't consider it the norm by any stretch. They make money, until there's a better way, it's just a cost of doing business. The investor and the contractor should make significantly more money than the Realtor (each) in the deal, or there's something wrong.
Posted on 1/18/13 at 5:37 pm to Gr8t8s
I will partially agree with this poster, while standing behind my realtor point.
What I am saying is that post 2008, profits are down and these deals are hard to make because the pie is half the size. So, if u project profit to be 30% after all the holding costs that is awesome, but holding costs are up and profits are down due to the current market. The realtors have no skin in the game, sit back and collect 6%. When the market is down they get paid the same just less times. Us investors/builders just get paid less.
I do know a few banks trying to make deals like this bc the market is so tight they can't sell lots they have repoed. When u run the numbers something that makes sense for u can't make sense for them bc of the sales prices in the market.
What I am saying is that post 2008, profits are down and these deals are hard to make because the pie is half the size. So, if u project profit to be 30% after all the holding costs that is awesome, but holding costs are up and profits are down due to the current market. The realtors have no skin in the game, sit back and collect 6%. When the market is down they get paid the same just less times. Us investors/builders just get paid less.
I do know a few banks trying to make deals like this bc the market is so tight they can't sell lots they have repoed. When u run the numbers something that makes sense for u can't make sense for them bc of the sales prices in the market.
This post was edited on 1/18/13 at 5:40 pm
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