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WOOD TICK
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Discussion Starter · #1 ·
Hello everyone. I have decided to take the plunge into general contracting. Ive been working in the trades for 12 years. I want to build a presold home. If It doesnt come through I am going to build a spec. If I quit my job to start building this house can I use the draws from the bank to pay myself. I cant afford to not have an income for a months. I talked to a friend in banking and she wasnt very helpful. I know some banks are more leaniant with there money than others. I hope this makes since. thanks
 

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Super Moderator
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If you can't afford to go a few months without income then in my opinion, you are not ready to take this plunge. Most new businesses fail in the first year. A business that starts with no cash has no real chance of success. No bank is gonna be ok with this arrangement.
 

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Super Moderator
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Taking the plunge in most all cases truly means taking the plunge.

It takes time to establish your business, and a general rule of thumb is that you should have enough reserves to live without income for at least 6 months. (in addition to your capital investment)

Be careful and welcome to CT.
 

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I own stock in FotoMat!
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........ I cant afford to not have an income for a months. .........
IMPO, you are far from ready. You need to have enough cash reserves on hand to pay your personal bills for at least the first 6 months, if not 12, in order to even contemplate hanging out your own shingle.
 
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Vendor
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The skill set required for general contracting is not the same one as used by the trades.

In this climate, you are insane to consider a spec home, and wildly optimistic to think you can run a business without a substantial amount of cash reserves. You will not be able to get a loan for your venture from a bank, period.
 

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KemoSabe
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In my experience, the bank will want you to show proof of available funds to get the project to a draw stage. Some will finance the land, others won't. Some banks will do a foundation draw, while some will want to see the structure dried in. Just remember, once you take that first draw, finance charges will start to accrue. Construction loan interest has buried more than one General Contractor during this economic downturn. Seems to me, you may be able to buy more than you can build with the inventory that's bank owned right now.:thumbsup:
 

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I have often woundered about this topic my self. I've thought about the fact that im a contractor, can I pay my self to work on my own house out of the loan from the bank.
 

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Working
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Some great advice in this thread. I don't know where you are located, but some areas are better off than others.

When I started a couple years ago I had the 6 months cash reserve on hand and also had several jobs lined up for the first 2 months.

I would keep at your trade job for a while longer and take some busiiness classes so you know how to atleast figure overhead and your expenses.
 

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WOOD TICK
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33 Posts
Discussion Starter · #9 ·
thanks for the quick replys. I have the skills and the knowledge and the tools.I am willing to morgage my home if I need to. I also have family who could help finacialy if I need it but I dont want it. I another option is to continue working and build nights and weekends, but that will be tough on my family life. I am not TOO concerned about the spec house selling. The market is fairly good here in ND/MN.
 

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KemoSabe
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I have often woundered about this topic my self. I've thought about the fact that im a contractor, can I pay my self to work on my own house out of the loan from the bank.
When I built my own house, once the draw check was cut, I could do whatever I wanted with it. Hell, at that point, the bank had my property and an enclosed home as collateral and the supply yard, who I had opened a mortgaged account with, had been paid in full. The draw schedule was based upon percentages of the entire project. 10% foundation,25% framing(windows and doors installed) and so on.
 

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Super Moderator
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thanks for the quick replys. I have the skills and the knowledge and the tools.I am willing to morgage my home if I need to. I also have family who could help finacialy if I need it but I dont want it. I another option is to continue working and build nights and weekends, but that will be tough on my family life. I am not TOO concerned about the spec house selling. The market is fairly good here in ND/MN.
You owe it to yourself and your family to really investigate this via: a well thought out business plan, a lawyer, and a CPA.

You will get great tips and advice on this forum, but dont risk losing your home unless you have really really really really really really done some homework.
 

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Vendor
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Asking the question indicates that you may not have the knowledge. Banging nails, hanging sheetrock or placing concrete are skills, but they do not make you a businessman. When you run a small business you will have to be your own bean-counter, and that is an entirely different skill set. Accounting, scheduling, contracts, and bids are just a few of the things you must not only know how to do, but do well.
 

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Super Moderator
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Asking the question indicates that you may not have the knowledge. Banging nails, hanging sheetrock or placing concrete are skills, but they do not make you a businessman. When you run a small business you will have to be your own bean-counter, and that is an entirely different skill set. Accounting, scheduling, contracts, and bids are just a few of the things you must not only know how to do, but do well.
I quoted TS's post so you could read it twice. It's dead balls on the money.

Being able to build things is less than half of what you need to be able to do in order to be successful on your own.
 

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WOOD TICK
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33 Posts
Discussion Starter · #14 ·
Im not worried about my end. I am a mechanical engineering grad. Been doing estimating and bidding for a while. wife is a schedualer with an accounting background. I am just wondering on the banking side. Ive heard some banks will just give you a checkbook and say here you go. others are more strict. Just wondering if I will get any guff for writing myself a check?
 

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Vendor
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No, you should pay yourself a salary, but again, just the fact that you ask indicates that you really do not understand how to operate a small business.
 

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WOOD TICK
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Discussion Starter · #16 ·
I am sure I have some things to learn. Hence asking questions on this forum. I really apriciate everyones advice.
 

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WOOD TICK
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Discussion Starter · #17 ·
I do know that I am not going back to school. I know that I am smarter than alot of contractors out there. I always research everything well. I am going to start thinking very hard about doing this. I am hoping I can learn more of what I would need.
 

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Super Moderator
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Asking on a somewhat anonymous internet forum is not the good basis for making any type of business decision.

We are more than happy to give you tips and tricks, but what I thing TS and I are trying to tell you is that there is MUCH MORE to business than just being able to account for the money and do the work.

Have you ever operated any type of small business?
 

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Vendor
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6,346 Posts
Google, "business plan". Then do one, and once you have one that makes sense to you and your wife, approach a banker with it. You won't get a loan, but once you have done that step the bank will at least tell you their expectations for giving you a loan.
 
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