Over the years I've had many of our manufacturer students ask pertinent questions such as what size home do I build; what do I put in it; where do I build it? finding back it's easy for me to make these decisions now, but when I first started building in 1975 these were trial and error situations. And my hindsight is crystal clear. It's very easy for me to look back and see things I wished I had known when I first started building. That's what you're going to learn in this article.
You'll learn the pros and cons of being a speculative or spec manufacturer (as opposed to a contract builder.) If you're not well-known with those terms, a spec manufacturer is one who will settle on a site, select a design, build a home and then sell it to a client. A contract manufacturer is a manufacturer that you hire to build a home for you. By the way, spec building is how I suggest you begin rather than building a home for somebody else. I'll construe why later.
Horo House
I'll begin by showing you how to be one of the best spec builders in your area, even if you've never before built a home. I'll advance this information by discussing points that are unique to spec building. Next I'll discuss points that are unique to contract building, and points that pertain to both spec and contract building.
A Word Of Caution
I want to stress that when starting your building business, you must isolate your firm from your personal life. In the early 70's I was in real estate industrial sales. I barely survived a major recession. Roughly all things I owned was in my name and most of it was repossessed. Had I known then what I know now, I'd have retained that large home, that Mercedes and that airplane.
In the building manufactures there are many things that can happen to you, some of which you have beyond doubt no operate over. According to the 2008 every year report by the National center for State Courts, in 2007 Americans filed over 90 million lawsuits, more than a third of which were civil cases. This does not consist of the volumes of legal disputes that were placed before a lawsuit was ever filed. Based on the sheer estimate of legal disputes that arise, in and out of court, one could say that most Americans run the risk of being complicated in a legal dispute at some point in their lives - for many people, more than once. This is especially true for those who work in professions with high lawsuit vulnerability such as doctors, dentists and, yes, especially builders! You should invest in hiring professionals to help you protect your assets. It's easier than you may realize. This is one time you can't procrastinate. I can tell you some great bad dream stories but I don't want to scare you this early in the game. Anyway, don't live in fear of what might happen. You only lose if you don't play.
I. Speculative Building
A. How To Be One Of The Best Spec Builders In Your Area
Before you buy a lot, before you buy any house plans, the first thing I want you to do is put together your success team. I call this the Henry Ford philosophy. If you read about Henry Ford, you'd learn that some habitancy thought about him to be illiterate. He once sued a Chicago newspaper that wrote an report claiming he was illiterate. In the lawsuit, Henry Ford emphasized that he didn't need to know all things about all things because he hired experts to support him in all that he wanted to do. This left his mind free and clear to do all the things that he beyond doubt knew how to do. Well, I've learned from that religious doctrine myself over the years. I perceive there is not enough time in this life to do everything. I now hire experts to support me in my decision-making, and it has been a distinct factor in my success building homes.
Your success team should consist of the following:
1. Real Estate Agent
2. Landscape Architect
3. Artist/Architect
4. Kitchen/Bath Designer
5. Interior Designer
6. Lighting Designer
I'll discuss each of these team members in information as we go straight through the course. Don't be concerned. When you start out, you don't need the best. These team members are more affordable than you could perhaps imagine.
B. Obtaining Your First Loan
Let me tell you a story. And the further you get away from this story, the harder it's going to be to borrow money to get started.
Let's assume that you're gainfully employed. If you're not employed, but instead are self-employed, then you have to have a high credit score or produce tax returns for the past three years to qualify for the loan. If you currently rent a home or apartment and you want to build a home for yourself, you're a prime candidate to borrow money to build a home - for yourself. So, you get the money. You build a home. You put it on the shop during construction. You sell it. You go to the bank. You borrow money under the same premise. You get the money. You build a home. Put it up for sale. Sell it. Do it over and over again and pretty soon you walk into the bank and the banker looks at you and says, gosh, you should come to be a home builder. And you are.
Now, that's the easiest way to get started. Most every manufacturer I know got started in the manufactures this way. This formula will also furnish you with the least risk. Why? Because if you don't sell the home you'll naturally move into it. In turn, this will make it easier for you to sell because a home that is furnished will ordinarily sell faster than an unfurnished home. You'll eventually sell it and can start the process again. The bad news is that you may be fascinating a lot. I remember one consolidate that wanted to own a home free and clear. They used this formula on five homes, plowing their behalf back into each home. Their sixth home was constructed fully from cash. They owned it free and clear and got out of the building business. They naturally wanted to do what it took to own their home free and clear.
The further you get away from the above scenario, the harder it is to get the introductory loan when you're just getting started.
For example, let's say that you currently own a home and you want to borrow money to build another home for yourself. A banker will generally be negative. They tend to look at the downside and might criticism something like this. "That sounds real good but you currently own a home. What are you going to do with your current home?" Your response is, "I'll put it up for sale during the building of this new home and then I'll sell it." The banker comments, "That sounds pretty good, but what if you don't sell your current home?" The banker generally looks at the downside - that is you're going to be stuck with two house payments. If you're able to show you can afford two house payments, you may very well get the money.
You all the time have to have a thriving windup to your story you tell the banker. Never look at the banker and say, "Well gosh; I'm only borrowing 70% of the appraised value. If the bank had to repossess the home the bank would have a bargain. The bank could sell the home, and make a good return on its investment." Never use this kind of logic on a banker. Bankers don't want to be in the homeowner business. Never imply or even think in your mind this will happen.
If you're not gainfully employed or you have a problem with your credit or you have no cash, your next best formula is to find an investor that will joint investment a scheme with you. I've done this on many large projects when I didn't have the finances to afford it myself. What I ordinarily did was to buildings the investment so that the joint investment partner would put up very itsybitsy or no money. Investors beyond doubt like that! What I needed was their strong financial statement. Understand, there are many investors, such as medical doctors, who have sizable financial statements but they have very itsybitsy cash. So if you can buildings the investment so that it requires very itsybitsy or no cash, it becomes a relatively easy investment to sell. When I've worked with a joint investment partner, after selling the investment, the investor would be repaid any cash he had invested, plus a fair interest rate that was agreed upon up front. All remaining profits would be split 50% to me and 50% to the investor. ordinarily in a situation like this, the investor would let me deduct any out-of-pocket expenses but, understandably, they would not let me take any salary.
You would not believe some of the wild, crazy, ridiculous investments requiring large amounts of cash I've seen these habitancy put money into. Many of them have the same luck in the stock shop that I have. These habitancy should feel blessed that you came into their lives with a viable real estate investment. I've found these habitancy by talking to friends, going to investment seminars and running ads in the paper.
How to come to be a pro Home manufacturer - Part I
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