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All Forum Posts by: Devin James

Devin James has started 120 posts and replied 491 times.

Post: Gross Margin Calculation for New Construction

Devin James
Posted
  • Developer
  • Orlando, FL
  • Posts 500
  • Votes 304
Quote from @Brady Morgan:

Appreciate you sharing your numbers, always interesting to see what costs are in other parts of the country. I actually just did a live stream yesterday on my channel (youtube.com/@brady_morgan) that went over this exactly. In particular the part where I talk about market, is important. It looks like you are doing an affordable build based on the cost but hard to say since you didnt provide info on the build itself such as square footage and finishes. Also, you didnt mention any financing costs, was this built with cash or do you roll that into your cost of construction?

Thanks! 

The home is 4bed/3bath and 1990sqft

Finishes= quartz countertops, fully tiled showers, 8ft doors, LVP flooring throughout

Financing isn't included in Gross Margin. 

To calculate Net Profit, we need to deduct: Construction Financing, Investor Capital, Overhead, Insurance, Warranty, Etc.

Post: Gross Margin Calculation for New Construction

Devin James
Posted
  • Developer
  • Orlando, FL
  • Posts 500
  • Votes 304
Quote from @Jaycee Greene:
Quote from @Devin James:
Quote from @Jaycee Greene:
Quote from @Devin James:

Gross Margin is an important calculation for developers/builders.

Gross Margin = Gross Profit / Revenue

We shoot for a 20% gross margin on our New Construction Homes

Real #’s:

Home Sales Price: $374K

  • Closing Cost: $18,700
  • Cost of Construction: $258K
  • Land Cost: $30K

Gross Profit = $67K

$67K/$374K = 17.9% Gross Margin

Came slightly short of our goal of 20%

Homes Values and Build Costs are constantly fluctuating

I wish we had a crystal ball

 Hey @Devin James. Did you do a variance analysis for this new build?


I had to look up what "variance analysis" meant.

If I understand the question correctly, you're asking "What went wrong to not hit our 20% target?"

The answer is cost of construction came up slightly, and prices came down slightly.


Ding ding! Were there any "intangible" value created through this build that wouldn't be reflected in the numbers? An example would be that you kept your crew working rather than laying them off. Another would be you are building other units next door/nearby and you can chalk this build up to the "learning curve".

I didn't see a CFO on GLH or GLC's website, but I'm sure you have someone doing this type of financial analysis for your developments? Most CFO clients that I work with that are new construction/home builders usually target a 20%-25% gross margin as they usually have to deliver high teen returns to their investors.


Great question. I would argue that there's intangible value in every deal!

One of our Co-founders is an excel wizard. Duke MBA. So we treat him as our CFO. But since we are still small, we (the ownership) don't have any set titles as of now.

Post: Gross Margin Calculation for New Construction

Devin James
Posted
  • Developer
  • Orlando, FL
  • Posts 500
  • Votes 304
Quote from @Jaycee Greene:
Quote from @Devin James:

Gross Margin is an important calculation for developers/builders.

Gross Margin = Gross Profit / Revenue

We shoot for a 20% gross margin on our New Construction Homes

Real #’s:

Home Sales Price: $374K

  • Closing Cost: $18,700
  • Cost of Construction: $258K
  • Land Cost: $30K

Gross Profit = $67K

$67K/$374K = 17.9% Gross Margin

Came slightly short of our goal of 20%

Homes Values and Build Costs are constantly fluctuating

I wish we had a crystal ball

 Hey @Devin James. Did you do a variance analysis for this new build?


I had to look up what "variance analysis" meant.

If I understand the question correctly, you're asking "What went wrong to not hit our 20% target?"

The answer is cost of construction came up slightly, and prices came down slightly.

Post: Gross Margin Calculation for New Construction

Devin James
Posted
  • Developer
  • Orlando, FL
  • Posts 500
  • Votes 304

Gross Margin is an important calculation for developers/builders.

Gross Margin = Gross Profit / Revenue

We shoot for a 20% gross margin on our New Construction Homes

Real #’s:

Home Sales Price: $374K

  • Closing Cost: $18,700
  • Cost of Construction: $258K
  • Land Cost: $30K

Gross Profit = $67K

$67K/$374K = 17.9% Gross Margin

Came slightly short of our goal of 20%

Homes Values and Build Costs are constantly fluctuating

I wish we had a crystal ball

Post: New Home Buyers are Strapped for Cash

Devin James
Posted
  • Developer
  • Orlando, FL
  • Posts 500
  • Votes 304
Quote from @Patricia Steiner:

There are several lenders who offer low/no closing cost options for first time homebuyers. Some costs are eliminated (such as 'soft charges') while others are accounted for in the interest rate.  And, it's amazing how many closing costs are junk fees that we as investors need to pushback on paying for ourselves and our clients. There simply are too many people attempted to get their hands in our pockets.  The industry is long overdue for an overhaul.  


 Interesting perspective

Any examples of the junk fees you see? We may need to switch lenders.

Definitely too many hands in our pockets...

Post: New Home Buyers are Strapped for Cash

Devin James
Posted
  • Developer
  • Orlando, FL
  • Posts 500
  • Votes 304

We've sold 65+ homes and the biggest request we get from our Buyers is help with closing costs.

Most of our deals we're providing anywhere between $5K-$10K to help Buyers offset the cash requirement to purchase a home.

Even in today’s "high" interest rate environment, many Buyers prioritize closing cost assistance over an interest rate buydown.

This speaks volumes about the challenges Buyers are facing when it comes to saving enough cash to purchase a home.

It’s a reminder that understanding what Buyers need most is key to creating deals that work for everyone.

Post: Time is of the essence - Im currently learning an expensive lesson

Devin James
Posted
  • Developer
  • Orlando, FL
  • Posts 500
  • Votes 304
Quote from @Nick Rutkowski:
Quote from @Devin James:

Im currently learning this lesson with New Builds that have taken twice as long to complete than anticipated.....

Finishing a Real Estate project ASAP is critical because...

1) Holding Costs add up quickly

- Loan Interest

- Property Taxes

- Insurance

2) Investor Capital

- Our financial projections are dependent on how fast we can turn our investors capital. If we can complete projects faster, we increase IRR and build trust.

3) Market Risk

- The longer it takes to complete a project, the more exposed you are to market fluctuations.

This goes for all things Real Estate - BRRRRs, Flips, New Builds, Rehabs, etc.

Real Estate is a wild ride


 I feel your pain, I've had this happen many times where the project is twice as long. Hopefully you have a better streamlined build on the next one.


Its a part of the process

We'll be more efficient as time goes on

Thanks for the feedback! Always good to know you're not the only one, haha!

Post: Time is of the essence - Im currently learning an expensive lesson

Devin James
Posted
  • Developer
  • Orlando, FL
  • Posts 500
  • Votes 304
Quote from @Jay Hinrichs:

we ran into this in FLA  a few years back when I had 4 starts and I exited that market..

permits  sub base all pretty tough for someone who is not there and already knows the systems hands down and has a devoted loyal sub base.. thats the key in my mind.


For sure! 

And it is very market dependent. 

In 1 market, for a SFH, permitting is 2 months with a 5 month build time.

In another market, permitting is 5 months with a 8 month build time for the same home.

Post: Time is of the essence - Im currently learning an expensive lesson

Devin James
Posted
  • Developer
  • Orlando, FL
  • Posts 500
  • Votes 304

Im currently learning this lesson with New Builds that have taken twice as long to complete than anticipated.....

Finishing a Real Estate project ASAP is critical because...

1) Holding Costs add up quickly

- Loan Interest

- Property Taxes

- Insurance

2) Investor Capital

- Our financial projections are dependent on how fast we can turn our investors capital. If we can complete projects faster, we increase IRR and build trust.

3) Market Risk

- The longer it takes to complete a project, the more exposed you are to market fluctuations.

This goes for all things Real Estate - BRRRRs, Flips, New Builds, Rehabs, etc.

Real Estate is a wild ride

Post: To those who consider themselves very wealthy, is wealth worth what is takes?

Devin James
Posted
  • Developer
  • Orlando, FL
  • Posts 500
  • Votes 304
Quote from @Corey Conklin:

@Devin James

I think another question you need to consider is “why do you want to be wealthy?”

Some people like to have freedom to do what they want, some like to buy fancy cars, some don’t want to have to work for someone else, some want to prove they can go from nothing to something, some are just competitive. There are numerous reasons why people want to be wealthy.

I think your “why” is an important factor to consider when asking was building your wealth worth it.

I wouldn’t call myself “wealthy” by comparison standards, but I’ve made a lot of progress on net worth over the last 5 years. It’s taken a lot of work, and a lot of lessons learned. It hasn’t been easy, that’s for sure.

I’ve sacrificed a lot of time with my family, my overall physical fitness has diminished as I no longer work out 6 days a week, and my social life is pretty much nonexistent.

So, trust me, I’ve had multiple times that I’ve asked, “why am I doing this?” At times it seemed logical to just cash in what I had built or scale back and take away the stress but then I remember my “why”.

Having a strong “why” and purpose to what I’m doing keeps everything into perspective. My “why” makes the pursuit of wealth worth the sacrifice.


 Definitely! My wife and I do this exercise every year. "What do we want our life to look like in 10 years?"

Through this, we find that what we want doesn't require tons of $$$. It helps us focus on whats truly important.