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re: If a group of investors approached you to build homes
Posted on 1/17/13 at 9:34 pm to whit
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.
1
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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