Partnering With Contractor On High $ Spec Home
I'm considering partnering with a contractor on a high end spec home in an area i am familar with. We have had numerous discussions, viewed possible sites, philosophies, etc and am comfortable with the project..in theory. I've worked with the contractor before (on my home) and things went smooth, and he is very reputable with numerous successful projects.
We are looking to put down 30% of project cost, cash with construction financing for the remainder. 14-18 month project.
I am looking for any general advice, caveats, thoughts that might help me in this stage prior to moving forward with any sort of agreement.
Thanks -rictorsan
Have you considered (or considered and rejected) the idea of not doing a spec but marketing a custom home package and building once you had a contract with an end user?
Hmm. Plan was to obviously market the property after the plans and drawings were complete.
Certainly the idea of only building with a contract is less risky. Thing is, we are banking that the appreciation rate will continue on high end properties here and will be able to list the home at a much higher price towards end of build out than we are conservatively estimating. Thanks for that idea, gives us more options. -Rick
Along similar lines.....I currently buy raw land, subdivide, and resell lots to either builders or individuals who hope to build one day. Can I hire a general contractor to build a house for me, and then sell as a package? Would there be enough value added in doing so to make it worth doing?
guitarbrad,
You could retain a builder either to do a spec and then sell the total package to the end user or go the custom route with no building until you have a purchase contract for the total package from an end user. Whether the numbers work in either scenario (particularly the spec) will depend on several issues, including comparable sales values in the area, builder's fee, your profit.
Don't know about VA, but if you're talking high-end or actually anything higher than production housing, I would be cautious about building a semi-customized spec since that could have limited market appeal.
Hello guitarbrad,
It depends on how you structure your deal. If you are willing to back the whole project then obviously you'll receive a larger part of the profit. As for Nancy's comment on building anything other than a production home, it all depends on the area as well. Here custom homes are a common thing. I am meeting with a developer this week to discuss how to structure a deal where he has land to develop but wants me to build some specs. We will be using his money so obviously I am willing to give up some of the profit. It's a win-win for both of us
guitarbrad,
As Tom pointed out, one key ingredient is what is the norm for a particular area. True custom homes on spec are not the usual in my area. So I'm cautious about recommending that people try to sell a spec (instead of marketing a total package that's not built yet) because I've seen custom spec homes sit here. But areas differ.
You could check around your area, see what's being built, if on spec, is it sitting unsold, and get a feel for what's the "norm" .
Hello Nancy,
I agree with you, if someone can sell the total package then all the better Sitting on a spec could definetly eat ones profits in a hurry. Personally I wouldn't suggest anyone do this, or for that matter take on any building project, without the proper experience. Sold job or spec home, without the proper experience it could spell disaster.
Tom,
I agree with you 1000%--people who don't have building experience should not undertake it. (I shudder at the thought.) And they should make sure that whoever they hire does, so that the building experience doesn't turn into one big horror story.
Nancy
Original Post: '..I've worked with the contractor before (on my home) and things went smooth, and he is very reputable with numerous successful projects..'
So this is a contractor who has made a VERY good name for himself and built some extremely good homes..both custom and spec that have sold well, and sold high.
I am not so much concerned with WHO I may be partnering with, but as a $ partner in the transaction and I am a new Realtor, I was originally looking for thoughts/ideas on how I can best protect my interests reflected in our parternship agreement. -Rick
Nice to meet you TomC_MI,
Just wonder how do you deal with harsh winter conditions (in MI) that we know are not favorable for building homes? Did you ever considering doing some work in the warmer states until the spring come to your aria?
For a while now I am takling an idea of hiring builder from out of state to build for me hoses and condos here in California.
How does this idea sounds to you Tom?
rictorsan,
My comments about selection of the builder were not directed at your particular situation, but rather in response to Tom's comments and guitarbrad's question. Sorry if that wasn't clear.
As for protecting yourself -- regardless of whether you do a spec or market a total package with the house to be built -- my recommendation is that you have a real estate attorney prepare a JV agreement. Whatever it's called, the contract between you and your partner should be very clear on what you both intend and your respective rights and responsibilities, what specifically is to be built, etc., and incorporating much of the language from the construction contract you probably used when you had your partner build your home.
Thanks for the advice Nancy..
Quote:
On 2004-02-16 17:42, omega1 wrote:
Nice to meet you TomC_MI,
Just wonder how do you deal with harsh winter conditions (in MI) that we know are not favorable for building homes? Did you ever considering doing some work in the warmer states until the spring come to your aria?
For a while now I am takling an idea of hiring builder from out of state to build for me hoses and condos here in California.
How does this idea sounds to you Tom?
Hello Omega,
Yes the winters here in Michigan are terrible for anyone in the contracting business. Things slow down but we all manage to survive. As for building in a warmer state that would be great, however I would have to take the time to get licensed, not to mention learn the way they build out there. Each state has different codes ect, so it would be tough. So for now I will stay in the miserable state of Michigan and hope things go well enough this year that I can hide inside all next winter
Quote:
On 2004-02-16 17:23, NancyChadwick wrote:
Tom,
I agree with you 1000%--people who don't have building experience should not undertake it. (I shudder at the thought.) And they should make sure that whoever they hire does, so that the building experience doesn't turn into one big horror story.
Nancy
Hello Nancy,
Not too many people feel the same way us we do on this subject. I see many people on there real estate investment sites say they are going to build this or rehab that yet they don't have a clue as to how to use a saw let alone build something to code. It always amazes me but at the same time I find it somewhat entertaining I guess everything sounds easy until you attempt it.
On another note, I have your Land Buying & Selling e-book and have found it interesting as this is going to be the next venture I tackle after gaining the proper education Fortunately I also know a local developer that I am sure will show me the ropes but I would like to gain some more knowledge before I approach him.
Tom,
I'm still laughing over the "saw" thing. Great mental picture!
As to the other, thanks. Hope you will find it helpful. It took a lot of years to "pull" some of that info out of builders, as well as many painful experiences and trial and error.
Nancy
rictorsan,
Glad to meet you. I understand you have quite a boom going on there as we do here in Florida.
Reputable builders quite often partner with private investors here in Fort Myers and Naples. This mostly in the Million dollar plus homes.
I have a partner that tells me all the contracts and paper in the world will not prevent a thief from being a thief.
You best protection is total involvement on the project. You have to trust your partner, but I would verify the market, the pricing, the product etc. Get some key man insurance. Quietly do a financial check on him, Make sure there are no secrets.
I suggest YOU own the land and the property - heck - you are putting up the money.
Have your attorney spell out all contingencies and consequences.
I like this way of making money and have done it before and will do it again.
Please keep in mind, however,that when we are banking on continual price appreciation we are speculating, not investing.
Best of luck to you - remember - if it was easy- every body would be doing it...
Gregg