Questions about a investing type of a business

Hi everyone, I know more or less nothing about home construction, but I would like to have a business that works like this: 1. I buy a empty land plot 2. build a house using alternative materials and 3. sell it, but I have two problems.

First of all, if I would hire other people and maybe companies to build the house, then what would my official ,job title" even be, a ,building investor" or what? I know its not that important, but…

More importantly, since I want to build houses with alternative materials, could I pay construction companies to build them (since they probably have people already working for them) or do they only build with their own materials, meaning that I would have to hire people for all sorts of jobs myself?

I don’t know where to start in answering this.

If you know nothing about home construction why would you attempt to go into that business ?

If you hire other people to work directly for you. Then you have to have the infrastructure to use them efficiently. This means supervision, equipment, tools, and the smarts to have the materials delivered on site in the correct order needed and on time. You blow through money exceptionally fast by not having things organized correctly.

If you hire an existing company to do the work they have the above mentioned responsibilities but you would have to supply the plans and specifications as they need to know exactly what to build. Have you thought of this yet ? You really do not start any construction project until you know exactly how you wish to build the project.

No construction company builds with their “own” material. They buy what is needed at the lumber yard or other sources. There is a huge industry out there that is into supplying all kinds of material, including alternative materials, to contractors.

If you and have all the money to blow on this project then do the following.
[li]Buy the land[/li][li]Hire architect to design the house using the alternative materials you are suggesting.[/li][li]Hire a contractor to build the entire project start to finish.[/li][li]Visit the job site every day and watch how things progress and learn the business.[/li][li]Do this 2 or 3 times before you attempt to run a job yourself.[/li][/ul]

Because it looks like a really profitable and perhaps not that hard of a business, most people in my country build their own homes, with the help of architects of course, so I suppose that it isn’t extremely hard, plus as you said my main job would be to supervise, I was just wondering whether I’d be forced to hire people on my own or whether I could work with a contractor, due to the materials thing.

Serbia, as I see in your profile. I have no idea how things work there for construction or the standard construction methods or materials.

By your own admission in the OP you said you do not know much about the business. You have to learn that and the best way to do so is as I said. Hire a contractor and go the job site every day and see the project from start to finish is done. That way you learn.

Construction requires that things be done in the correct order as you’re constantly building the project out. Mistakes are expensive. Say you have five tasks that have to be done in this order. A-B-C-D-E. However do to a mistake or inexperience you do them in this order A-C-D-E and now you’re looking to do B. Well sometimes you have to rip out C-D-E in order to go back and do B. Then you have to put C-D-E back. Now your losing money on that section of the project. See the problem?

It is good money if you know what your doing, no doubt on that.

You would be wise to hire a contractor who has used alternative materials. If they haven’t, they will be learning on your dime, and you might be buying their mistakes.

Are you planning to start this building business in Serbia? Or in the US? I’m a little confused. Perhaps you could clear that up for us?

I would suggest:

Get an architect to design your house.
Get a surveyor to check the site before you buy it.
Hire a lawyer to check any contracts and to make sure that you have all the necessary permits and permissions.
Find a builder who will quote a fixed price to your specification.
Hire a Site Manager to organise it.

Later, you may be able to be your own site manager and later still, you can hire individual trades (carpenters, plumbers, bricklayers etc) as and when you need them.

Whatever the estimated cost is, add 50% as a contingency. Things will always go wrong - the builder may go bankrupt, you may find underground water, etc.

Don’t forget that even if you’re successful in being a contractor with no previous experience you’ll need to find a large population of alternative people to buy the houses.

When it’s comes to committing to 10,000’s or 100,000’s of $$ to buy a house most people (even the hippies and greenies) want something that is conventional enough to be resellable. And I LIKE some alternative construction!

If most people in your country build their own homes, why should they buy one through you? More importantly, why should they pay extra (your profit) for almost nothing (not that hard of a business)?

Are you sure there isn’t a whole lot more you don’t know about your imagined business venture than whether you can find a contractor willing to work with the materials you dictate?

You would be doing what a lot of developers do, except that they generally don’t put up an individual house without a buyer lined up. If you were to buy a larger piece of land, and spend a lot more money developing it and putting up several houses, and you could afford to have that much money tied up for a year or more, then you can do ok. But if you’re thinking of buying a developed lot where all you have to do is build a house and the utilities and roads are already there then you won’t have much margin to work from. Larger developments take inexpensive property and add great value in the infrastructure on top of the sale of the houses.

First off … building a house is not easy … even with blueprints there’s a lot of stuff that needs to be done that the blueprints aren’t going to show. Yes, you’ll be hiring people, concrete and drywall finishers, electricians, plumbers, the list goes on. There’s so many little details and just one little tiny mistake at the beginning of the building process will become a rather expensive fix at the end. Quite literally, you’ll need the toilet paper holder in hand as soon as the cement foundation cures up some. If the blocking is even 5 mm to shallow, you’ll have to rip out a good chunk of your bathrooms to fix it.

What this business is typically called is “Speculation Building” … buying the lot, hiring a General Contractor* and then selling the house off. This can provide an excellent return on investment, but it suffers from high risk … if the house doesn’t sell, you’re going to lose your ass. Remember, there are three separate skill-sets involved here; real estate, construction and business management; each of which is a profession unto itself. Assuming you can run a decent business, you’ll really need one or the other’s skills, either buying or selling real estate or being able to serve as the General Contractor.

I’ve never done this, but came very close once. I’ve been General Contractor for some real estate agents and built a few houses on my own property as rental units. This all after a couple decades as a commercial carpenter with a lot of lead experience. If you don’t have experience with any of this, I suggest you invest in areas where you do have extensive knowledge.

  • = This is the guy you’d hand the blueprints to and wait until he calls back saying he’s passed final inspection. He knows the best excavators, high-wall people, cabinet shops etc etc. Sure he’s expensive but he’s carrying all the insurance needed during the building process, you don’t want to have to pay for the roofer falling off …

What sort of “alternative materials” are you thinking of? Hay bales? Sod? Straw? Brick?

Because if the alternative materials aren’t commonly used in the housing market where you live, you’re going to limit your customer base. For example, let’s assume that you’re in the Northeastern US, where many (most?) houses are built of two-by-four studs, with wooden clapboards or shingles on the outside and drywall on the inside. If you instead build a house with brick walls, some of the homebuyers are going to be turned off by this.

Your biggest risk is cash flow. Note that I didn’t say money - it’s a problem of timing. For example, you buy a property and start paying to have it built and your contractor fails to show up or fails to perform. You can probably recover damages from him in court, but while you pay an attorney to recover damages, you have to front the money to keep someone else working. Or, suddenly there’s a fight over permitting that delays construction for months. Or, you finish the property, but it sits on the market for 8 months before it sells; can you afford to wait?

If the answer to those questions are all yes, then I would say you’re guaranteed to make at least a little profit. Maybe not enough profit to outperform good stock investments, but the people who lose money are the ones who get halfway into a project and can’t afford to finish it. If you have $500,000 on hand and you plan to use $100,000 for building, then you’re safe. If you have $80,000 on hand and figure you can borrow $20,000 to get the $100,000… well, you’re at real risk of losing all of it.

In the United States, almost everyone who does what you’re describing becomes a real estate agent, or at least partners with one. Selling a home here usually has 6% of the sales price going to real estate agents, so being your own agent is a great way to improve your profit margin dramatically. I don’t know about agents, commissions, etc. in your area, but I’d be surprised if there wasn’t something similar.

It’s also very common for someone with money to partner with someone who has expertise in building.

As for alternative materials… I’m not sure exactly what you mean, but if you’re in it for the money, you need to research what your customers want to pay for. There’s a market for green construction in the US and some people are willing to pay a premium for homes using recycled materials, energy efficient designs, etc. Know your target market and do what it takes to make them happy. A lot of this comes back to your lack of experience. Do you know what home buyers are looking for, or are you planning on building something in the hopes that someone else happens to want it?