Developing new homes? - Posted by Corey (ND)

Posted by Jeff on December 31, 2003 at 07:38:25:

Sounds good to me. We have put up several modulars and had good sucess. Make sure it is a true modular, built to normal housing codes, set by a crane, etc.–not a glorified mobile home. My father has been a GC for over 30 years (comm/res) and has toured one of the plants and feels they are every much as well built as stick built homes. Maybe even better.

Developing new homes? - Posted by Corey (ND)

Posted by Corey (ND) on December 30, 2003 at 23:53:13:

I have done the rehab and long term rental business for a few years now. I am quite familiar with real estate (even sold it for a few years).

What I am considering is building “spec” homes on lots.

My market is doing quite well and is due to expand as a local company is expanding.

I have quite a bit of rehabbing experience but not a lot of new construction experience.

What I am considering is purchasing either modular homes (built in sections, trucked to site, and set on basement in sections) or panelized homes (walls are pre-built with window and door openings in place). I think either one of these would suit me well. I would not have to hire as many laborers to assist in doing these jobs and would not need as much experience / skill.

I would build these for resale, but would also consider keeping a few for long term rental if it worked.

What are your thoughts? Pros and cons of doing this. Pros and cons of this type of home / construction.

Thanks for the feedback!

Re: Developing new homes? - Posted by Jeff TX

Posted by Jeff TX on December 31, 2003 at 14:33:00:

I have never built any homes so please take what I say with a grain of salt. My brother builds spec homes in Alabama (I am in Dallas). In his area (and mine for that matter) new houses are booming. He has done quite well building nice $300k homes.

After talking with him at Christmas and based on the research that I have done about modulars and what not, here are a couple of suggestions:

  1. Build typical homes in popular growing areas. In my brother’s area you can buy a lot, build a nice spec home, and make at least 10% profit over the cost of building. All you need is financing and the financial means to make construction loan payments. My brother uses a partner who is a real estate agent, so their homes are listed. They started doing this over a year ago, have built 5 homes and sold them all before construction was even finished. He does this part time, soon to go full time.

  2. As far as modulars go, I couldn’t find anyone in my area building them. It sounds like a great idea, but I don’t think that it’s necessary. If your new housing market is anything like ours, there is no reason to get tricky and outsmart yourself. Just build what everyone else is building, where everyone else is building them. Everyone in my area wants brick homes with tall steep roofs. If people buy modulars in your area, then it may very well work.

Since you are a rehabber, you should be fine making the transition to building. My brother tells me that it’s easy (he does have some experience in home building though). Hire reputable contractors and check after everything they do; i.e. make sure the foundation is square after it’s poured.

One problem with home building is that the market can turn more quickly than the existing home market. If interest rates go up, your construction costs rise, and buyer’s afforability goes down. Not a good combination. You can mitigate your risk by starting out doing one at a time. If the buying market goes south, you could refinance and sell on owner finance, rent, or do whatever your creative mind comes up with.

I am interested in spec houses, but don’t have enough cash or credit to swing it right now. Maybe I should bring in a partner. I think the new housing boom is probably at its peak, but I believe that it will still do fairly well in my area as long as interest rates don’t shoot up too quickly.

Because of your experience, I would suggest that you jump in while things are good. I would not suggest home building for newbies or people who are not experienced at dealing with contractors.

Let us know how you do!

Jeff TX

Re: Developing new homes? - Posted by TomC_MI

Posted by TomC_MI on December 31, 2003 at 09:01:17:

Spec homes can be profitable if done correctly so I think you have a good idea there. However, stay away from panel homes as they will cause you more problems than they are worth. As for modulars, to me it’s just a fancy word for mobile homes. Think about this. How solid is something such as a house going to be that travels hundreds of miles on a highway? Things are bound to twist, work themselves loose and who knows what else. While they might be built in better conditions they are built production and the work is often rushed. Just my opinions. Good luck!