How to Start a Custom Home Building Business

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According to Trulia, 40% of Americans say they would rather live in a newly built home. And it is a very good reason why.

Homeowners want to live in a dream house that is completely built for them. They also don’t have to worry about issues from older homes, such as worn down roofing and an outdated foundation.

This is one of the many reasons why it is worth it to start a home building business. However, there are regulatory requirements and other specific steps to take before taking your business to the next level.

Here is how to start a custom home building business.

Handle the Requirements First

If you are interested in a home building business, you likely have experience in construction. You could have started in corporate construction or even been a general contractor before taking the plunge into business ownership.

Like all types of construction, there are requirements and regulations to handle before you start building.

First, you need to be licensed. The amount of work required for a license depends on the state you live in. But most states require a background check, exams, proof of insurance, bonding, and other necessities.

Second, you need to make sure your contractors are licensed. This includes those you’re hiring for specific work such as electrical or plumbing.

Once you get clients, you need a permit to build a house on the chosen land.

If you’re not sure what exactly you need, each state has a building commission and a home builder licensing body. These organizations can help gather the licenses and permits you need.

Detail the Finances

Building a home isn’t cheap for your clients and it’s also not cheap to build a home on the contractor’s end. This is why you should detail the finances before starting to take in clients.

First, start with a fair amount of profit you want to gain with each client. And then list out the expenses and if achieving that profit is plausible. Some of the expenses you can expect include materials, land, and labor.

You’ll also want to find areas where you and your clients can save. For example, implement any energy-saving construction wherever you can. This helps you and your clients qualify for energy saving tax credits.

Find Your Clients

From here, you’re ready to start building. Now you need to find clients. Building a client base is one of the most difficult aspects of business ownership. The custom home building market is also growing, so you may be under a bit of competition.

Networking is still one of the best ways to find clients. Start with your local home builder association and see if you can add a listing there or contact clients through that organization.

You can also team up with like-minded industries, such as architects and realtors.

You can also rub shoulders with those who sell land and see if they have buyers interested in the land. Offer home building services to them.

In addition, there’s always marketing and other classic ways to attract clients.

Hire and Contract Workers

You have two options when hiring workers: have an in-house team or subcontract workers.

Subcontracting workers is a good option when you’re just starting out.

You only need to pay their wages and only use them for the project’s contract. You don’t have to cover insurance or benefits. However, all of this should appear in your contract.

State the length of the term you’re using the workers and all of the other information that specifies their role in the project. You also have to see proof that they’re insured and have liability.

Hiring workers takes a little more work and money. But you can have the security of knowing you have a hard-working and skilled staff, rather than trusting contractors.

First, you need to insure your workers. The insurance requirements are different for each state, you should discuss this with your state’s governing board. You also have to properly train them in many areas, such as OSHA training. Providing your workers with the latest OSHA 30 Hour Construction Course, for example, is essential because organizations that lack the credentials granted by this course can receive serious fines and penalties, ultimately shutting down entire operations. This is why it's always safer to comply and avoid legal issues.

You’ll also realize it may be worth it to both hire and contract workers. There are certain roles, such as plumbing, electric, and bathroom and kitchen remodel contracting, that you always need but don’t need staff for it.

Other Factors to Consider When Starting a Custom Home Building Business

These are only the basic requirements of a home building company. But there are other factors to determine. Here are a few good examples.

The Age Group You’re Attracting

A home building business attracts three prominent age groups — millennials, Gen X-ers, and baby boomers. You may get more clients in one age group than another. But it’s still important to know all about these age groups.

Baby boomers own more wealth and can afford a more luxurious custom home.

But that’s if they’re willing to invest in a custom home. Many baby boomers are entering their retirement phase and would rather use their retirement dollars to downsize or even switch to renting.

Millennials are the fresh market in the home building age group. But they’re not at the age where they can afford a mortgage payment, let alone a custom home.

Still, millennials are at the age where they’re starting a family and looking into buying a home, so it’s worth it to keep your eye out on them.

Gen X-ers are in the middle. They have made a decent amount of money and have already established themselves in their careers and as family people.

They can afford a custom home and may want a custom home to raise a family. This is why this will likely be your target market.

Your Location

You’ll want to establish your business somewhere with lots of land. And the land shouldn’t be out in the middle of anywhere; you’ll want to ensure there are schools, jobs, restaurants, transportation, and other necessities nearby.

Mistakes to Avoid

As you start your construction business, you’ll likely run into errors along the way. This is a part of the process of owning a business. But some common mistakes can be avoided early. This includes:

Putting Too Much Emphasis on the Real Estate Market

Yes, there are times when the market will appeal to more sellers than buyers.

Try to not let it affect your business. There are more actions you can take during a seller’s market, such as purchasing better land and compromising on a better price.

Not Developing a Land Strategy

You don’t want to purchase too much land during a slow season and you also don’t want to purchase too little land during a busy season.

Come up with a land strategy so you always have enough land, but not so much to where the maintenance and other factors eat up your time.

In addition, you also want to pay a good price for the land. Do your research and work within your budget to ensure you buy land within your price range.

Not Streamlining Your Processes

As you gain more experience, you’ll learn how to streamline your processes.

These processes include operating procedures, documentation, and analytics. See how much you can automate. For all other tasks, devise a system that works for you.

Not Disciplining Your Staff and Contractors

Your project will have the best chance of gaining success if you discipline your staff and contractors and ensure they fulfill their responsibilities. Set up policies and procedures.

If your staff doesn’t follow them, give them warnings. If they still don’t follow the rules, let them go. You need a dream team of employee to build dream homes for your custom home building business.

Poor Management and Communication

In addition, you’re likely not a perfect manager. Identify ways you can improve your management skills. Always have documents that outline your business, your role, and your staff’s roles.

Keep an eye on their work and give feedback if you notice your staff is lagging. Listen to their concerns and make the work experience a positive one for them. You can use management software if it’s necessary.

In addition, you’ll want to ensure you’re properly communicating with your staff.

Always open the lines of communication, for you to talk to staff and also for them to talk to you. Provide clear direction and always inform your staff of any company highlights.

Lack of Training

You may trust your staff and contractors are properly trained. But it’s best to do your research and really discover their training background during the interviews.

You should also require all staff members to do basic training and OSHA safety courses. In addition, keep this training consistent.

If you’re hiring a fresh worker, ensure they oversee a more experienced worker. As your home builder staff moves up in the ranks, continue training them and use training specific to their roles.

Own a Successful Home Building Company

Custom home building is becoming a more popular market. If you have construction experience, starting a home building company is worth it.

You should continue reading our blog for more advice on real estate development, property management, construction, and home improvement.

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