10 Mistakes for Startup Home Builders to Avoid

Running a startup in any industry is tough. Running a startup in home building, or in construction,...

Running a startup in any industry is tough. Running a startup in home building, or in construction, can be even more difficult for inexperienced owners and managers.

10 Mistakes for Startup Home Builders to Avoid
While many people will give you advice on what you should do, let’s face it: it’s good to know what you shouldn’t do as well.
If you’re getting started up in the home building industry and are looking for advice, here are 10 mistakes to avoid (adapted from Professional Builder): 
  1. Allowing the market to affect your company’s character. “There is no substitution for good business character.” How you run your business should ring true both in good and bad markets.
  2. Paying trades too early. Don’t be stingy, but don’t pay trades too early–you may not get them to finish the job if you do, unfortunately.
  3. Paying too much for land. Work backwards from home sales price, and keep land within market ratios of sales price.
  4. Lack of discipline. Hold everyone in your firm accountable to your policies and procedures, all the time.
  5. No strategic plan. Have a five-year plan and review it annually to make sure it still makes sense. This should be a written plan that helps guide decisions and actions.
  6. Not treating land and home building as separate profit centers. “Land is a very liquid asset; don’t dry up your cash reserves by keeping your land and home building operations in the same bucket.”
  7. Pricing homes on cost instead of the market. The market will determine the cost of your home, not how much it cost you to build the home. Don’t build an expensive home without doing your research first.
  8. Not knowing your customer. Your customer may have unique wants and needs; wants and needs likely vary by market and location, too. Make sure that what you’re selling is what people are buying.
  9. Mismanaging HOA transitions. Many builders and developers with homeowner associations are notorious for mismanaging the transition to homeowner rule. Don’t be one of them. 
  10. Poor product design process. Stop designing homes you want to live in, and start designing homes your customers want to live in.
Using what’s listed here as an example, many home builders and construction professionals would be happy to give you advice on how best to position your business for success. While you can’t expect a competitor to give you their secret sauce, good advice is out there if you know where to look.

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