Builder proftis / new construction - Posted by BenjaminH

Posted by Steve (Austin, TX) on September 22, 2004 at 23:12:19:

For me, I couldn’t find any duplex’s I liked the numbers on, but I managed to pick up 3 lots for about 25% of their market value, and worked a deal with a general contractor where I’d do some of the work for a reduced fee - found out I enjoy building more than I enjoy being a landlord, but I still do both… There is a lot to learn, both from the business side (risk management, contract negociation etc) as well as being out at the job site. Working closely with a 25-year experience local builder gave me a huge jump start.

Builder proftis / new construction - Posted by BenjaminH

Posted by BenjaminH on September 22, 2004 at 24:17:42:

how much do builders make on a house?
i’ve allways heard home builders make 10-20% of cost, and thats not a bad living by any means. i’ve been looking into getting into it, and those numbers seem way to low. i have estamates of everything (listed below) and from the estamates i’ve gotten i’m looking at 50% plus. i’ve never built before, only done renovations so i am new to this. but i have had a retiered builder look at my costs and he can’t see anything out of line. so i’m wondering if any of you have built before, i guess i’m looking for some insight here. (i just find it hard to believe).

$280 - permits
$3,306 - excavation, underground & backfill
$600 - water & sewer taps
$7,157 - basement & footers
$3,148 - basement & garage floor
$5,500 - lumber
$5,400 - framing
$1,412 - windows & ext. doors
$1,000 - garage door & install
$975 - roofing materials
$800 roof labor
$1,935 - siding
$2,000 - siding labor
$475 - gutters & downspouts
$6,000 - plumbing
$4,800 - HVAC
$4,075 - electrician
$1,200 - insulation
$5,475 - drywall
$1,200 - brick mason w/ brick
$2,180 - cabinets (kitchen and bathrooms)
$1,500 - tubs, vanity, sinks, faucets
$400 - light fixtures
$500 - countertops
$2,000 - finished carpender
$3,000 - flooring allowance
$1,200 - driveway
$1,000 - sidewalks & patio
$1,000 - landscape
$500 - appliances


+25,000 lot cost

$97,000 +/-

this is for a 1300 s.f. 3bed 2.5bath home.
other builders are selling 1300 s.f. 3 bed 1.5 baths for $144,900. the quality of materials are same or better on mine. if i ask the same price $144,900, even after some haggeling and realtor fees that i don’t plan on needing it’s 50% profit on the construction (not including land).
are builders making these returns or am i missing something?

-Benjamin Howard

Re: Builder proftis / new construction - Posted by ray@lcorn

Posted by ray@lcorn on September 22, 2004 at 20:13:28:


Here is part of a post from about a month ago.

I was a SFH builder for about ten years a lifetime ago. It’s a hard way to not make a living. And building on scattered lots is the toughest of the tough because you don’t get the advantage of using assembly line type completion, meaning speed, moving the subs and excess materials from one house to the next. Ever heard the expression “Time is money”? That had to be invented by a contractor.

Take that example of the $200,000 house… let me show you how the numbers work on the builder’s side… say its a 2,000 sf two story, not a big house, hard cost of about $65-$75 psf in my area -six months avg. construction time unless componentized

$200,000 sales price
-$30,000 lot cost
-$12,000 sales commission
-$130,000 hard cost (low side)
-$8,000 5% soft cost on h/c + lot (interest, overhead, etc.)
= $20,000 profit

That’s if everything goes right(!) and, oh yeah, good weather. Tough gig.

Most folks that are successful in the building biz are either;

A) Very big (more than 50 houses a year); use component systems (modular, panelized); run by job foremen over captive subs; central office staff to process the paper (supplier payables, change orders, sub invoices, draw requests, closings, etc.); can make money on 10% margins as above because of volume, or;

B) Very small (2-6 per year), hands-on, custom jobs, mostly high end. Avoid the overhead by working from home and truck; using craftsmen type subs; trade credit instead of bank loans. They’ll get margins of 20%-25% because of high quality, low overhead.

The middle ground (12-25 per year) is known as Death Valley of the construction biz… quality suffers because of price pressure competing with the bigs; buyers want the quality of the smalls but can’t afford the materials or the craftsmen = unhappy buyers and lots of call-backs; speed is not bad but not great even if componetized because there isn’t enough work to keep subs captive; its more than one person can do but not enough for complete staff. The overhead kills you because it isn’t spread over enough units; margins are non-existent.

That’s personal experience talking… I’ve done all three.

The original post is at

The thread it appears in also has some information about development costs.

I’ll add to this discussion that most builders miss hard cost estimates by underestimating the final finish material costs, especially when a buyer is in the picture before the house is complete. $65 psf in my area gets a little above average finish materials, not quite custom, but above tract house standards. That’s the expectation for the price range of the example, but your market may be different. Required finish quality (e.g. carpet allowance, light fixtures, trimwork, doors, cabinets, etc.) is often determined by competitive market factors. If the builder down the street is using upgraded finish materials and state-of-the-art appliances and you’re competing in the same price range then the buyer will either request an upgrade or offer less.

The soft costs, as Steve’s post mentions, are also usually underestimated. Your estimate includes no soft costs such as commissions, closing costs (at least 2, maybe 3 closings), interest carry costs or overhead (insurance, phone, truck, etc.). Excess time on market is another profit killer.

For lot cost, the rule of thumb is a 6 to 1 ratio, house sale price to lot cost, about 17% of sales price, for a FULLY DEVELOPED lot. Some will push it to 5 to 1 (20%) but go any further and there won’t be a profit on the house. You’re within the parameters (144,900/6 = 24,150) as long as you’re building the right product (size, features, quality, etc.) for the neighborhood.


Re: Builder proftis / new construction - Posted by Steve (Austin, TX)

Posted by Steve (Austin, TX) on September 22, 2004 at 06:38:02:

I’ve been building for a couple of years now, my thoughts:

Add in the following costs:

  • Two closings - one set of fee’s on the land, another when you resell.
  • Realtor on the resell - 6% - unless you do an FSBO
  • Real estate taxes while the land is yours
  • Builders risk and General Liability Insurance.
  • Debt service unless you are using cash.
  • Engineers fee’s
  • Do you have plans? Buy online for a range of prices, I’ve seen architects charge up to 9% to custom design.
  • What percentage could prices drop in the 5 months it will take to build?

Then add in any overhead (accounting/bookkeeping, miles on your truck/car, phone bills etc).

Just for comparison, I’m currently builing a 2-storey, 1950 sq ft, 3 bed/2.5 bath 2 car garage, covered deck on both floors - my lot cost was $28k, construction is going to cost me ~$115k ($10k is a septic field) final value should be about $210k-$220k, so I’ve got a similar ratio to you (resale is ~50% over the construction costs), I’m exepcting to walk away with $40k +/-.

Custom home builders in my area charge typically 20% to 30% of cost, (and a chunk of that goes straight to general liability). Spec home builders can make a little more, especially if they are doing volume (drives down their costs). Having said that, one builder I spoke to recently is netting just over 10% after all his overhead.

Re: Builder proftis / new construction - Posted by Dan

Posted by Dan on September 22, 2004 at 01:18:29:

Are you figuring in the carrying cost of the land/project during the time it takes to build, permit fees, engineering fees, architectural fees (if you use one). It might be wise to have the agent pre-sell it while you are building it…have someone do a nice drawing of it for a flyer to show potential buyers.

It’s hard to comment on the actual numbers that you have posted as to their accuracy as cost vary from locale to locale but I don’t think that the relative numbers are out of line. Just set a realistic schedule/budget and stick to it.

A 1300 sq ft house with 3 bedrooms and 2.5 baths is a tad small from out here in California…seems small. I’d check that figure closely prior to jumping in!

Good luck.

Re: Builder proftis / new construction - Posted by Drew

Posted by Drew on September 22, 2004 at 10:13:09:

Hello Benjamin, Steve and Dan,

How do I get started as a builder? I was thinking of buying a construction company. How best can I become a builder coming in with no experience in the area? How do I get into the business? How did you guys start?

Any insight, advise will be appreciated


Re: Builder proftis / new construction - Posted by Gavin Wilkinson

Posted by Gavin Wilkinson on October 11, 2004 at 14:36:26:

I recommend starting by building for yourself. That way, if there are minor construction issues, you have more time to resove them. Also, you don’t have to pay a realtors commission up front, and you have already found your buyer, yourself. Construction loans are easier to find for owner occupied construction vs spec. You can also do part of the work yourself, and save some cash on subs. If you run over in time, you don’t have someone breathing down your neck.