Wednesday, November 6, 2019

Lose Money on Your Last New Home? Maybe It's Time to Go Modular

We’ve all been there and done that. You priced the customer's home, signed the contract, spent 8 months building it before handing over to the customer but when all the bills have been paid and the dust settles, you lost money.

How could that happen? You were very careful pricing it out. You knew your costs. You even built in a little extra for unforeseen problems. So why did you lose money?

Oh, you say that you’ve never lost money on a single house you’ve built. That’s fantastic. But did you make the bottom line profit you should have made? Almost an impossibility.

I hear from site builders all over the US telling me their horror stories of customers they wanted to choke, inspectors they wanted to buy at the jobsite, subcontractors not doing good work or not even showing up.

The bottom line to all the emails and calls I receive about the aforementioned items is none of them were calculated into the “cost” of the house. How do you figure in the cost of a sub not showing up or an inspector failing a small part of the house and then rescheduling for a week later?

What is your procedure when a customer wants to make a change order? Do you require them to pay for the entire change order up front? You should. Think about it…..if they can’t pay for it before you make the change, where will they find the money later?

How many of you have negotiated down a change order for the customer and at best broke even. Yeah, that one hurts.

Unless you have your own finish crew, you are at the mercy of drywallers, trim and finish people, electricians and plumbers. Add an HVAC contractor into the mix and is it any wonder you get any house finished on time.

All it takes is your electrician to get backed up on another job and can’t show up to yours for 12 days. Now your HVAC people can’t install all the connections and tells you to call them when the electrician is finished and they will try to get back to you as soon as they can. It doesn't take long to get a month behind.

You promised your customers they would be in by certain day. You planned it out and thought you had plenty of time. Then the rains came and didn’t stop for a week. The ground is all mud and the lumber yards trucks couldn’t get into the lot.

The house is now weather tight and the bleeding has begun but you’ve built in that little extra to cover these things. Right!

This story could go on and on but this is enough for now. The bottom line is that you can never accurately figure your final profit dollars. At best you will make a nice profit and at worse, you will lose big time on the house. That is how this business works.

Using modular construction at least gives you a fixed cost on approximately 70-80% of the home’s cost. Fixed.

Going modular only leaves everything from the sill plate down and everything from the time the carriers leave the factory.

It is still better than a site builder who has every last detail to calculate and sweat through until the house is finished and the contract is completed.

I almost forgot. It doesn’t matter if you are site builder or a modular builder, you still have to service the house for at least the next 12 months but what could possibly go wrong in that short period of time?

Figuring your bottom line cost and profit is so important to the survival of your business. Going modular is one of the best options you can make as a new home builder to better insure a solid profit.

Gary Fleisher is a housing veteran,
editor/writer of Modular Home Builder blog
and industry speaker/consultant.

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