How to Start a Custom Home-Building Business
More than 339,000 home-building companies are currently active in the United States, with over $89 billion in annual revenue. The construction market is growing at a steady pace, offering great opportunities for entrepreneurs. Starting a custom house-building company comes with its challenges, but it's well worth it. The key to success is to properly manage and deliver projects, have the right people on board and grow your business slowly.
Each city and state has different requirements for homebuilders. Before you get your business off the ground, make sure your employees and subcontractors hold the necessary licenses.
A growing number of Americans are choosing custom homes. Finding the ideal location and environment is no longer enough. Customers nowadays want to have unique properties that offer flexibility in terms of architecture and design. Some are interested in green properties with solar panels and recycled materials, while others build smart homes with private pools, game rooms or on-site gym facilities.
There is no one-size-fits-all solution when it comes to building the perfect home. Production homes are still popular, but they cannot match the flexibility and convenience of custom properties.
Today's custom homes follow the latest trends, such as apartment-style spaces for multigenerational families, energy-efficient heating, screened-in porches and cutting-edge security systems. Some incorporate universal design features that allow their owners to live independently as they age. Lower countertops, no-step entries, wide hallways and nonslip floors are just a few examples. Other consumers want to have custom homes with open floor plans, spa bathrooms, commercial-grade kitchens, built-in wine cellars, hot tubs, dressing rooms and other luxury amenities.
Take these aspects into consideration before starting a custom house-building company. Think about what services you will offer, define your audience and research the market. Decide what types of materials you want to use and where you'll get them. Consider choosing a niche such as brick-, stucco- or wood-exterior homes to stand apart from the competition.
The home-building industry had a 2.5% compound annual growth rate, according to IBISWorld. Its high revenue and rapid growth are largely due to the increase in disposable income and the rising demand for single-family homes. Furthermore, home ownership rates are expected to increase as millennials reach 30. This generation accounted for 26% of all homebuyers in 2018.
With these things in mind, define your target market and seek ways to reach your customers. As a custom house-building company, you'll likely charge higher rates than production builders; therefore, you may want to target older millennials, baby boomers, business professionals or families with an above-average income. Consider customers' preferences too. For example, about two-thirds of homebuyers, including 88% of seniors and 75% of baby boomers, prefer single-story homes.
Proper planning is crucial when starting a new home-building company or any other business. Define the exact steps for becoming a homebuilder, set realistic goals and decide on the time frame and resources needed to meet your objectives. A solid business plan should cover every aspect of running your construction company, from market research and financial projections to building permits. Determine your customers, the types of jobs on which you'll bid, how you will structure your business and how many employees you will need.
Define the scope and niche of your home-building company. Think about how much space you will need for construction materials and supplies, whether you will lease or purchase construction equipment and how you'll get financing. Your business plan should also cover the legal, regulatory and trade requirements to which you must adhere. Another aspect to consider is whether you will do everything yourself or subcontract others to complete certain projects or parts of a project, such as plumbing and carpentry.
For example, you may either hire project managers and architects or work with them on a project basis. Also, make a list of suppliers and request multiple quotes. Familiarize yourself with the different types of construction materials and study the industry trends, such as the growing demand for green homes. Plan to grow slowly so that you have control over the know-how, manpower and resources necessary for running your business and don't try to jump from building small wood houses to three-story villas overnight because that's a recipe for failure.
The construction industry has unique requirements that vary among states, counties and towns. Your best bet is to consult a lawyer or reach out to the Occupational Safety and Health Administration for more information. OSHA has specific regulations regarding safety training and education, protective equipment, acceptable certifications, occupational hazards, flammable liquids, construction materials, welding and more.
Start by registering your home-building company with the state. Once this step is completed, decide on a legal business structure, such as a limited liability company or a partnership, and then obtain a tax ID number from the IRS.
Hire an accountant to stay on the safe side in the event of an audit. Also, choose a comprehensive insurance plan that covers personal liabilities, work-related injuries, property damage and other situations that can result in hefty fines or lawsuits.
Each state and city has different regulations for homebuilders. For this reason, it's important that you know the building codes as well as the licensing and bonding requirements enforced in your area. Most states require construction workers to have a general contractors' license and a specialty contractors' license. The latter is required for those who specialize in a particular field.
The California Contractors State License Board, for example, issues three types of licenses for general building contractors, general engineering contractors and specialty contractors. In this state, painters, carpenters, electricians, demolition contractors, masonry contractors and plumbers each have different licensing requirements. There are about 60 specialty classifications plus a few others classified as limited specialties, which include awning contractors, synthetic products contractors, decking contractors and others.
As a business owner, it's your responsibility to make sure your employees or subcontractors are fully licensed. Depending on your location, you may also need building permits, employee permits or license and permit bonds, which guarantee that you will follow the rules that govern your license. Maryland, for instance, requires home-building companies to register with the Home Builder Registration Unit of the Maryland Attorney General's Office and apply for a construction license.
Once your company is registered and licensed, you can build a team and start marketing your services. Partner with real estate agents, interior designers, architects and other business professionals. For example, you can join forces with a real estate agent who sells land and engage in cross-promotion. Don't hesitate to take on smaller projects in the beginning because this will make it easier to build a strong portfolio and establish your reputation.
Another thing you can do is to use your compliance as a selling point. Many home-building companies are not fully licensed. If yours complies with the law, you have a competitive advantage. Mention this fact in marketing materials and when bidding on projects.
If you're targeting local homebuyers, advertise your service on the radio, on TV and in newspapers. Set up advertising campaigns on Facebook and Google to reach local prospects. As your custom house-building company grows, add customer case studies and photo galleries to your portfolio and share it on your website and social media pages. Put your logo on the company's cars, create architectural 3D renderings and virtual tours and use your website as a communication tool to inform and attract potential clients.