starting up

[ITE]

Ive been thinking about trying to start up my own small construction business in residential and commerical down the road at some time, especially something I can work at during my off time in the summer. can anyone give me some ideas of what this will take, especially at a legal standpoint or point me in the right direction to find this info. so far Ive just been pondering the idea but have not researched it yet.

[Rich]

I try and focus on 3 areas.

1. Making money
2. Not losing money
3. Quality of work

So how do we make money? I say proper estimating of work. This includes correct methods of taking off materials, subcontracting effectively, covering your overhead, and making a profit.
How do we not lose money? Keep change orders to a minimum, count everything in the project once and only once when estimating. Count it twice and your bid is high, don't count it and you just lost your butt.
Quality of work is not too difficult in the residential market but is still a full time chore. For quality of work not to eat your lunch on the profit side of a job you need to find quality issues before they ever arise and handle them.

As far as legal items.. you need to select the proper business structure that will work with your goals. Is it a sole proprieter, LLC, S Corp, joint venture with someone else? My suggestion is LLC, if allowed in your state, or a sole proprietership.
Now is the worst part.. dealing with a lawyer and an accountant. I really suggest consulting a lawyer to draft a couple different procurement contracts for you. An accountant can be very beneficial for this also - advice on who to talk to. An accountant can also help you get your cost accounting principles in place so you will be able to keep updated on what your cash flow is, daily expenditures, etc.. before it's too late. It's amazing how quickly money can dwindle without proper maintenance.

[Rich]

This could be my next series of articles I write. I can see several different articles on procurement types, contract types, business structures...etc. etc.

[ITE]

hey, thanks for all of the help. The site has been a great help to me.

[ITE]

Just another quick thought, what kind of licensing requirements and procedures are generally required? I live in Indiana, I figure each state is different on this subject or are they generally the same?

[Rich]

Most states require some sort of license. How you get the license is what typically changes. Some states make you take a test to prove knowledge, and othes assume you know somethng and only require a check. Your best bet is to check with the department of labor for your state. They will have all the information you will need.

[jjcold]

I'm going to tag onto this thread because I have a similar idea. It sounds like this guy may be a teacher, too??

My idea is to build a very simple design house, then sell it. I met a guy last week who does this very thing, he and his wife build a house, do most of the work themselves, then live in it and start another house. when they finish the second one, they move into it and sell the first one, then continue with that pattern. I'm wondering what the advantages would be to living in the house for a while before selling it. that way, they aren't considered professional builders with the same degree of liability? don't have to offer any sort of warranty? I could do that, but not sure since my first few houses would likely be smaller and more mundane than the house I'm having built now. BTW, just to clarify, I've been interested in doing this for years, not just now that I've seen my own house built. I know that doing it would be more complicated than observing it being done. that is why I would start very small and simple!!

[Rich]

The downside to that, unless you know the banker or can afford to foot the bill, is that you are paying a construction loan and a mortgage at the same time. Several of my friends do that very thing back in MT. They know the banker though. :)

[grumpydasmurf]

Wow how could I have not responded to this post sooner?!

The upside is avoiding capitol gains. If you won the house for 2 or 3 years when you sell it the tax hit is less. The downside is duh! Why would you want to move every 2-3 years?

If your going to have two mortgages this is what I would do: Buy 1 house and live in it permanently. Buy vacant land or tear downs and build out some new houses and sell them before they are even finished.

I know a few guys who do the above. One is a professional owning a few plots of land at any given time and avoids the capitol gains because he will own the land for a year before he even starts the permit process. By the time the house is sold he skates by the gains.

I know of another guy who kinda does the same thing. He knows nothing about building homes except that it is profitable when he sells them. He has a GC that basically handles the build out for him, then when it's almost done the house hits the market. He's just an investor, but makes most of the profit from the deal.

[mreynolds]

My brother lives in Colorado in a small town near Hot Sulfur Spring and hom and his wife are looking to purchase a home from a guy who does the same thing. He doesn't sell for a huge profit, he builds a house, lives in it, then starts another. I believe he does most of the framing, then contracts the electrical and mechanical. They are not huge homes, 2 bedroom 2 bath types, but in their market that sells pretty well. It seems like the biggest challenge to doing this is having the initial capital to start. If you could foot the down payment for a construction loan, then you could build to sell with no problem.

[grumpydasmurf]

If you can't foot the downpayment for the loan find an investor.

I could never live in a house undergoing major construction. I did that my whole youth. It's one of the rasons I haven't started the remodel on my bathroom... The fear of dust and not being able to use the toilet or shower for a few days... gross!

I might just do some minor touchups to make it presentable then undergo the major remodeling when I vacate. I'll probably kep the condo and rent it out.

[Rich]

That was my biggest gripe too Grumpy. We had to use the spare bathroom for awhile - pita. We did our master bedroom at the same time as the master bathroom.