STR to Custom Home Builds

[Andrew Lawlor]

I've been actively investing in short-term rental properties for the past three years, managing one live property and another that will go live in two months. I'm now considering expanding my real estate ventures into building custom homes, but I know this is an entirely different beast between the required capital, learning curve, time committment, etc. I'm not completely foreign to the construction process as I grew up around a family that was involved in home building, but due to living in another state I can't really lean on them for the direct, hands-on guidance. 

For background, I'm partnered with an architect and interior designer, but I'd have to find most of the subs as I don't have any formal connections (at least in the area I'd like to build). I have about $100k in capital reserves and can leverage the 2 properties for additional capital, as needed. My goal would be to start within 1-2 years and get some more experience with the construction process, project management, financing/budgeting, etc. What would be the best ways to familiarize myself with construction process, while still maintaining my W-2 job? 

I know this is a big leap, but any advice, criticism, or resources are greatly appreciated. Thank you! 

[Brady Morgan]

A few suggestions from an investor turned builder.

Learn the code for your area forward and backward. Just about everywhere in the US uses some version of IRC for its base code and then makes some changes to that as they feel necessary for their locality. I would suggest starting with reading the IRC book all the way through multiple times. Then add any other codes required where you want to build and study those as well. Do not rely on your subcontractors to know/perform the code correctly for your area. This is one of the biggest things that people dont think about when they decide to skip hiring a GC.

Become a familiar face with your local planning and zoning board/committee. This is who will approve or deny your plans when you apply for a permit. Go to some meetings ahead of applying, talk to the members of the board and ask questions if you have any. A lot of problems that arise during permitting and planning can be avoided by being proactive.

Build relationships with sub contractors. This is a tough one for new builders. The good subs in your area will likely have plenty of work already and may not even return phone calls. This is one area where it helps tremendously to have per-existing relationships with people in the industry such as family or friends. The best way to get through the door with subs is a recommendation/connection from someone they respect. Also talk to the local building inspectors and find out who they recommend and who they constantly have problems with. I am also the building inspector for my small town and I certainly know who the good subs are and arent. On the topic of building inspectors, make them your best friend. They can make or save a lot of headaches for you. Make sure you understand exactly what they want to see and when, all through the build process. Nothing will piss off the inspector faster than missing an inspection.

My last piece of advice, in an effort to not make this a book length post, deals with the money. You need to know what things cost. I have spreadsheets filled with material lists for every phase of the build that includes pricing for materials as well as labor, and sources that I use for them. Underwriting a new construction is like a flip on steroids in terms of volume, however you will find that you can get a much more accurate budget in the end because unlike a flip, there are very few unknowns going into it. The trick is just not forgetting something.

Hope this helps! I am a big proponent of self GCing new construction investments, as long as it is done correctly. Not an easy thing, but saving 20% or more on the cost of a new home seems well worth the time and effort if you ask me. I am currently working on starting a youtube channel that will teach what I have learned in becoming a builder, along with following some of my builds start to finish.