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Why All Contractors Do Not Try To Become Builders, Fixer Upper And Developers ?

 
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Old 07-06-2015, 06:57 PM   #1
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Why All Contractors Do Not Try To Become Builders, Fixer Upper And Developers ?


My math is clear. If I would do carpentry work at fixer upper for myself and not for other investors I would make 500-700$ hour. It proved a dose times. Kind I must push all alone through because I have incapable relatives. Wonder why other guys stay in contractor or even subcontractor stages? In my mind development and investment is only place in construction where is big money.
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Old 07-06-2015, 07:10 PM   #2
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Re: Why All Contractors Do Not Try To Become Builders, Fixer Upper And Developers ?


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Originally Posted by tipitop View Post
My math is clear. If I would do carpentry work at fixer upper for myself and not for other investors I would make 500-700$ hour. It proved a dose times. Kind I must push all alone through because I have incapable relatives. Wonder why other guys stay in contractor or even subcontractor stages? In my mind development and investment is only place in construction where is big money.
Your math is as clear as your English.

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Old 07-06-2015, 07:14 PM   #3
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Re: Why All Contractors Do Not Try To Become Builders, Fixer Upper And Developers ?


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My math is clear. If I would do carpentry work at fixer upper for myself and not for other investors I would make 500-700$ hour. It proved a dose times. Kind I must push all alone through because I have incapable relatives. Wonder why other guys stay in contractor or even subcontractor stages? In my mind development and investment is only place in construction where is big money.
Your post reveals the huge downfall to making "big money". Everyone knows how to make "bid money" when it is just hypothetical. When it comes time to put the plan in action all the things you overlooked become clear.

If there was one path to easy money, the market would correct for it. The key is to look for opportunities in the current market that pair will with your skills/capital, and make it happen.
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Old 07-06-2015, 07:40 PM   #4
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Re: Why All Contractors Do Not Try To Become Builders, Fixer Upper And Developers ?


More to the point:

If this is such a HUGE moneymaker, why the he11 aren't you doing it right now?
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Old 07-06-2015, 07:51 PM   #5
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Re: Why All Contractors Do Not Try To Become Builders, Fixer Upper And Developers ?


Your assuming the house is going to sell quickly.
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Old 07-06-2015, 08:05 PM   #6
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Re: Why All Contractors Do Not Try To Become Builders, Fixer Upper And Developers ?


There are just a few things stopping most people. First would be the cash to float a spec home, and the insurance and warranty, lawyers fees, real estate fees etc....

Next would be the knowledge you will need to know all aspects of construction.
Dont forget the tool! I have a small fortune in tools to be able to do multiple trades.

And the risk, after you spend half a million building the home you hope someone will like it enough to buy it over your competition (Big builders with unlimited funds and endless resources to build cheaper and probably better than most can)
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Old 07-06-2015, 09:10 PM   #7
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Re: Why All Contractors Do Not Try To Become Builders, Fixer Upper And Developers ?


Jump on in, the water's fine....
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Old 07-06-2015, 09:15 PM   #8
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Re: Why All Contractors Do Not Try To Become Builders, Fixer Upper And Developers ?


Actually any time I've looked at the math on fix and flip vs. contracting the money seems about even but I don't have to risk my money on a speculative investment. New construction I don't have a clue about but flips, especially after capital gains and realtor fees, seems like about the same money.

Generally in Portland, (because real estate is local), a two bedroom is going for 180-250 up to 320 in nice neighborhoods. Thats a chunk of change not a lot of tradesmen have so then you have to finance it. Non owner occupied will cost you as well so it would be 20-25% down, plus six months cash reserves required by the lender. This also adds financing costs to the flip. So on a financed flip at 250k You need 60k down, 20-50k reserves (to cover existing mortgages and all other debt service).

Also need money or financing for materials and/or contractors on your flip. Purchase, selling and capital gains costs would be 6500 closing, 20k realtor, 15k capital gains, 8k mortgage interest or 50,500 assuming you could sell the new improved 2 bedroom home for 350k. Or roughly a 1/3rd more than you bought it for. Leaving 50k profit, before materials. However as the market improves the spread between what house could be and what it is narrows. IE this run down hovel could be worth 350k, we want 320k in the good times and the spread extends in the worst times if you can actually find those magical deals ie it could be worth 350k we want 250k (seems like berkshire bought and held a ton of foreclosures in pdx buying low and selling high).

What are you going to improve on the two bedroom? New paint in and out, landscaping, new windows maybe, flooring, tile bathroom, kitchen cabinets, new appliances? So maybe 15k materials. 35k profit. To repaint a house inside and out, fresh landscaping, remodel kitchen and bath, and install maybe 10 windows. If you could do all this in a month not bad, if it takes you four months and the house takes four months to sell, not good.

The whole process is filled with assumptions and uncertainty. The only uncertainty there is in contracting is whether you're going to get paid for your work. If you're doing your job right by screening clients, contracts, taking deposits the default rate should be less than 1%. Better odds in my book.
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Old 07-06-2015, 10:10 PM   #9
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Re: Why All Contractors Do Not Try To Become Builders, Fixer Upper And Developers ?


Make lots of money...........pay Uncle Sam lots of money.....Capital gains in this political climate is brutal
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Old 07-07-2015, 07:15 AM   #10
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Re: Why All Contractors Do Not Try To Become Builders, Fixer Upper And Developers ?


Not many have a stomach for that, most like to go to work, do the job and get paid.

Building houses or flipping them, you laying out 100's of thousands dollars and you only see the profit after the house is sold, meanwhile if you dealing with the bank you have to pay interest, taxes, utilities, yard maintenance, etc and you can sit with a house for 2 weeks or 2 years... So not many willing to take these changes. Of Course when you sell you get a nice fat payout, but still not everyone is willing to do that or simply cannot afford to carry the house.

With that said, I been doing new construction and flipping homes for almost 30 years, there is a lot more involved than just knowing one trade and sub the rest out and flip it... To make money you have to know engineering, you have to know zoning laws, you need to have experience and know general codes for every trade, that is the only way you can keep the cost down and make a good profit...
I know many who tried, i.e my plumber bought 2 lots, my electrician got a building lot, and a few others I know... Some re-sold the lots and lost money, because by the time the zoning approval was over they were already in the hole so they sold it, and some lost some, some broke even just to get out.
Some went on building and after 1 house they went back to theirs trade and when you talk to them , they all say same thing "I don't know the hell you do this".

So on the general note, most jump into it because it seems easy and you will make a million dollars quick... but when you buy a two story house to flip, its always one story before you buy it, and it's another story when you own it.

Good luck
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Old 07-07-2015, 07:22 AM   #11
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Re: Why All Contractors Do Not Try To Become Builders, Fixer Upper And Developers ?


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but when you buy a two story house to flip, its always one story before you buy it, and it's another story when you own it.

Good luck
Good summary all around, but I especially like this part!
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Old 07-07-2015, 07:24 AM   #12
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Re: Why All Contractors Do Not Try To Become Builders, Fixer Upper And Developers ?


I've thought about it here. But the market is just so saturated with people who do this full time. They run ****ty crews, and bang them out fast. And people snatch them up. I have too much integrity to stoop to their level of build quality and I don't think I could do it fast or cheap enough to compete.

I might do one during a winter to see how it goes, but right now I don't have the money to float one over the winter and keep my bills paid up at the same time.
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Old 07-07-2015, 07:50 AM   #13
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Re: Why All Contractors Do Not Try To Become Builders, Fixer Upper And Developers ?


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To make money you have to know engineering, you have to know zoning laws, you need to have experience and know general codes for every trade, that is the only way you can keep the cost down and make a good profit...
Shouldn't you know all of those things if you're a good GC anyway?
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Old 07-07-2015, 07:52 AM   #14
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Re: Why All Contractors Do Not Try To Become Builders, Fixer Upper And Developers ?


I've know my share of contractors who have been in the spec business and others who went on to become developers.

The biggest concerns are money, organization and knowledge.

One contractor who used to do spec houses around here used the family farm as collateral. Since he had to float a 1/2 to 3/4 million dollar loan, he needed that kind of collateral to do it. He got out of this just before the housing market crashed, and, he never got back into it. He ran a slim crew too that had worked with him for years, and, they were willing to wait for the sale to get fully paid.

Organization and knowledge have to do with management and financial knowledge. Plus knowing all the ins and outs of investment, property valuation, working with government agencies, predicting future growth and accurately reading the economic climate in an area(geographic). Let's face it, most contractors have none of this.

Also, don't forget the structure of your company and the infra-structure for managing finances, personnel, dealing with sub's, etc.

There used to be a lot of contractor turned developers around here. Not so much any more. All it takes is one minor misstep (or perhaps a couple) and you are out of business.
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Old 07-07-2015, 08:54 AM   #15
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Re: Why All Contractors Do Not Try To Become Builders, Fixer Upper And Developers ?


Interesting answers. A roofer ask me often to go in house flipping with him. Problem is I'm self employed and he have a few crews and do almost 100 roofs per year. So imagine financial power difference. If we would get in more trades probably would work. Problem is I would have to spend at that house over 1000 hours and electrician and plumber would be like 100 each. How brake such ting?
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Old 07-07-2015, 09:09 AM   #16
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Re: Why All Contractors Do Not Try To Become Builders, Fixer Upper And Developers ?


I think I just heard a little reality set in.

So you want to get into a partnership with a dozen other tradespeople? Seriously?

The only ship that's guaranteed to sink is a partnership.
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Old 07-07-2015, 10:58 AM   #17
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Re: Why All Contractors Do Not Try To Become Builders, Fixer Upper And Developers ?


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How brake such ting?
Exactly.

Those situations work out so rarely that they can probably be counted on one hand.

What works, is when one of the trades becomes a builder/developer and works from well-written contracts with subs.

Which is just how we do it here in the States.
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Old 07-07-2015, 11:12 AM   #18
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Re: Why All Contractors Do Not Try To Become Builders, Fixer Upper And Developers ?


I buy, remodel and sell homes. I stick with homes I can pay cash for. I only do one per year, I always hold the house just over a year before selling. Gives me plenty time to get it done during down time between other regular work. Then taxes don't hit me as hard either. It's a good side gig. I do not finance any of them. If I did I could see it being a crappy ballgame.
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Old 07-07-2015, 12:00 PM   #19
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Re: Why All Contractors Do Not Try To Become Builders, Fixer Upper And Developers ?


I started buying single family homes (more than a few) in 2007. Purchased the majority of them in 2011. Haven't been too aggressive since that time (2011).

Life of killing myself and arthritic elbows (yup, I'm in my sixties ... well before titanium hammers) from swinging a rigging axe. Pneumatics were a g-dsend, to a stumble bum like me.

But, that "killing myself" allowed me to do all of that stuff cash, materials, real estate purchase, taxes, etc.

I don't think that I made much more than I did running my crew back in the day. However, one thing that one must consider ...

Talk about capital gains all you desire .... rent 'em for a while, then you're looking at long term gains ... so kind of on the favorable side.

Even if you sell 'em quickly, there is not the 15.3 ss/medicare burden upon dollar one (and beyond).

That's about the only advantage that I have found.

All in all, it was/is turned into a pretty decent experience and I'm still enjoying it, just a little less aggressively than a few years back.
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Old 07-07-2015, 04:27 PM   #20
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Re: Why All Contractors Do Not Try To Become Builders, Fixer Upper And Developers ?


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Shouldn't you know all of those things if you're a good GC anyway?
Of Course, without that knowledge any GC will go broke.

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