Are you thinking about starting a residential construction business? Perhaps you’re a new CEO or manager on the verge of taking the helm.
Regardless, residential building construction comes with a variety of challenges, such as low demand, financing concerns, phase 1 esa concerns, demanding clients, and increased competition. Above all, you must keep your work crews satisfied at all times.
At the same time, this area of construction can be very profitable, especially in counties undergoing vast economic growth. You can also enter niche markets, such as include single-family homes and multi-family units (i.e. apartments or condominiums).
This article will provide an in-depth look into residential development. Let’s explore.
Ongoing Setbacks
Hurdles are an inevitable part of the home-building process. Plus, your biggest roadblock could be your clients. The client may not be satisfied with the current project and may request some do-overs.
In other cases, the client may change their minds at the last minute or request abrupt additions. Delays can cost you more money in terms of manpower and resources.
The weather can also hamper your progress, especially if you live in an area prone to extreme weather.
- Example: Snow can force crews out of work for long periods. Moreover, supply trucks may not reach the construction site due to the icy roads. As a manager or owner, you must plan ahead and have other contingencies in place.
Research the Competition
If you’re starting a residential construction company from scratch, you must research the local markets. Even if you’re a seasoned professional, you should know your competitors if you intend to expand your operations.
In many cases, building in a particular area may not be the best option due to oversaturation. When it comes to research, ask yourself the following questions:
- How many companies are building homes in your target areas?
- What do they charge?
- What are their reputations?
- What are their specialties?
Overall, find an opening and capitalize on it. For instance, perhaps there’s a large builder who doesn’t have the best reputation. You can read online reviews to know more about the builder.
All too often, residential construction companies perform shoddy workmanship and flee town before homeowners notice the issues. In other cases, a residential company may merge with other companies or operate as another entity to escape bad work histories. If you discover this issue, you can impress the community with great workmanship. From there, positive word of mouth will spread.
Also, some builders may specialize in a certain area. Perhaps the construction company specializes in multi-family homes instead of single-family homes. If there’s a hunger for single-family homes in the area, you can fill the void.
Construction Financing
Homebuilders need home builder loans to complete vast projects. You can obtain loans for empty lots and pre-owned omes homes.
However, construction loans can be tricky due to adjustable interest rates. If you get an adjustable rate, you won’t have a clear picture of your future payments.
In other cases, a borrower may hire your company to complete the project. Since many construction loan borrowers aren’t builders, they rely on builders like to you build the home. However, the lender is the primary manager because they control the funds.
Additionally, there are several types of construction loans to consider:
- Conventional Construction Loan: This type of loan provides funds to build a home from the ground up. You’ll receive a certain portion of the funds throughout the project. The maturity date is usually one year or less.
- Construction-to-Permanent Loans: This loan begins as a standard construction loan but converts into a residential mortgage. This option allows borrowers to secure a permanent source of funding. Overall, they’ll receive two loans in one package, and they only pay one closing cost.
- Owner-Builder Loans: This loan option allows the borrower to act as the builder. In most cases, lenders don’t allow the borrowers to act as builders, but they’ll make exceptions for licensed builders.
Regardless of the loan type, you’ll deal with lenders who may have strict standards in place. Loan providers usually send inspectors to check on the status of the project. They can refuse to release additional funds if they deem the status of the project unsatisfactory.
Strong Networks
The success of residential construction companies depends on partnerships. You need teams of laborers and suppliers who are trustworthy and reliable.
Further, you must keep them satisfied with steady work. You may lose valuable crew members if you don’t give them something to do.
Without continuous projects, you must rely on standby crews that may not have the best work histories. Inefficient crews can cause unnecessary delays and unhappy clients.
The most successful construction businesses provide ongoing residential construction jobs for their personnel. However, providing work can be precarious at times, especially when demand is down.
Dry Periods
Low demand can cause unhappy crews and lost revenue. During these times, many builders rely on home remodeling to make ends meet. Also, there are other ventures that should be on your radar.
- Example: Some builders specialize in custom homes due to the higher margins. Higher returns can help your company fare through low-demand periods.
As an owner or manager, it’s your job to dip into unexplored territory to keep your organization afloat.
You can get the necessary support you need through a trade association that represents builders. If you’re in southwestern Ohio, check out Bcaswi.org to get more information.
Residential Construction: Is It Worth the Hassle?
Residential construction is worth the effort if residential real estate is your passion. It’s a challenging field, but it can generate high returns if you can pinpoint the right niche. Custom homes and renovations are lucrative niche markets, especially during demand dips.
Want to read more? Read more on our blog to gain insight into other residential topics.
