Starting a Home Building Company

Whether you have a background in construction or were among the three out of the five homeowners in the United States to pursue home improvement projects during the pandemic, starting a home building company can be highly rewarding, offering a unique combination of stability, creativity, and profitability. An increase in urbanization and housing shortages continue to drive demand for new housing, providing a stable market for home builders. Becoming a home builder allows you to express your architectural design and innovative construction. It can also be highly profitable, with the opportunity for multiple revenue streams such as custom builds and renovations. Not to mention, starting your own business gives you autonomy, independence, and freedom. To simplify your startup process, we have compiled a list of actionable steps you can take today. 

Step 1: How to Build a Home Building Company 

While a background in construction is not required, it has some advantages:

1. Understanding processes: Proficiency in construction methods, materials, and practices ensures high-quality workmanship.  
2. Managing projects: Project and construction management teaches planning, allocating, and controlling resources effectively and efficiently. 
3. Adhering to regulations: A construction background provides insights into local building codes, zoning laws, and safety regulations, helping to mitigate risks. 
4. Maintaining profitability: Previous construction experience informs accurate budgeting and monetary control, which is vital for your business’s financials. 

If you don’t have a degree in construction management, civil engineering, architecture, or vocational training, you can gain experience by working in the labor side of the industry. This will assist with understanding the various aspects of construction and areas of improvement in the industry before starting a home building company. Obtaining licenses and certifications, such as the National Association of Home Builders (NAHB) or the Construction Management Association of America (CMAA), are crucial. These certifications demonstrate that you possess practical management skills in the office and on-site. 

You can also harness the power of networking by building relationships with other home building professionals, such as contractors, subcontractors, architects, engineers, and real estate agents. 

Step 2: How To Become a Builder 

Here are eight steps to guide you on your journey to becoming a home builder:

1. Niche Identification 

Specify the area of interest for starting a home building company. Whether you pursue custom homes, speculative homes, green homes, smart homes, senior or assisted living homes, or affordable housing, understanding your niches allows you to funnel projects, attract targeted clients, and stand out in a competitive market. 

Based on your area of expertise, it is paramount to research prospective clients, your market and competitors, and market/innovation trends in home building. These resources can help provide further insights: 

• For news and forecasts, check out industry reports and market research publications, such as Google Trends, NAHB, Builder Magazine, and IBIS World.
• For local market dynamics and sales data, visit online platforms, including Zillow.
• For economic indicators and regulatory requirements, contact the local chambers of commerce. 
• For consumer preferences and competitor strategies, consider researching different social media platforms to monitor 

2. Business Plan 

A business plan details your company goals and steps to achieve them. It also outlines the structure and strategies of your home building business. While the exact documentation may vary from company to company, there are several components you should include in your business plan: 

• Executive summary
  • Company Overview
  • Goals 
  • Mission and vision statements
• Business structure
• Financial projections
  • Balance Sheet 
  • Income Statement 
  • Statement of Cash Flows
• Marketing and sales plan

The more detailed your documentation, the more likely banks, lenders, and investors will finance your startup. 

3. Legal Considerations 

Build your home building company as a legal entity from the very beginning. 

• Consult a tax professional to determine your home building business's entity type, name, and taxation obligations.
• Register your business through the IRS and the federal and state governments. 
• Verify permits and licenses required by your local and state government (contractor’s licenses, building permits, zoning permits, environmental permits, etc). 
• Insure your business with general liability, professional liability, builder’s risk, compensation, etc. 

4. Financing 

Starting a home building company requires covering initial and day-to-day expenses. To receive funds and be granted loans, you must set up a business banking account and determine your billing method. As you approach investors or lenders, have a startup capital budget within your business plan to help assess your anticipated revenues and expenses. This budget will validate you as an excellent candidate for those funds. A good rule of thumb is a three-year forecast of those anticipated costs from operations. 

Financing options for your home building company include: 

• SBA loans: Offer loans to entrepreneurs with lower down payment qualifications and longer repayment terms. 
  • 7(a) loans, 504 loans, and microloans 
• Friends and family: Consider personal loans whereby the lender is a direct contact. Although there is no formal application process and the loan terms are flexible, the agreed-upon terms should be documented and distributed to protect both parties.
• Keep your day job: Use your stable source of income to cover your personal living expenses and the initial expenses of your business. You can also set aside each paycheck to seed fund and invest in your company. While there are time and energy constraints, there is a mitigated financial risk and opportunity for business growth to transition to full-time with your home builder company. 
• Crowdfunding: Utilize platforms such as Kickstarter or GoFundMe to raise donations from many individuals interested in your startup company.  
• Angel investors: Seek out individuals willing to invest in your startup in exchange for equity. Additionally, consider investors with a background in real estate to provide mentorship and business expertise.  
• Joint ventures: Aim to partner with established real estate companies to provide capital in exchange for shared profits. 
• Real estate investment trusts (REITs): Research the benefits of REITs, which provide funding in exchange for shared profits. 

5. Team Building 

Becoming a home builder is not a one-man band; it requires a team. Leverage your connections to fill full-time or freelance roles through your prior experience and networking. You will need a home dealer, project manager, construction workers, architects, specialized subcontractors, bookkeepers, and inspectors.  

6. Land Acquisition 

A substantial part of the funding for your home building company will go toward land purchase. Consider geographical areas suitable for residential development that meet your growth criteria. Contact your local chamber of commerce for details about land for sale and business support services. Check out the economic development office within your local government website for more information. 

7. Construction Process

Begin identifying potential projects by networking with real estate professionals. Collaborate with architects, developers, and other industry experts to provide the construction specifications. Source construction materials and equipment required for the project. Establish supply chain and business management software to coordinate material distribution and operational analysis of your home building company. 

8. Marketing and Sales

Now that you’ve established your home building business entity, it's time to get clients! Do you need support with your networking and advertising? New Home Star’s home builder consulting services help home builders with unique marketing and sales needs. Schedule a call to talk to one of our account executives today. 

A successful and profitable home building company is researched and knowledgeable about the housing market. Through the startup process and well into your practice, continue to study more about the home building industry regarding trends, legislation and regulations, and economic considerations.

Starting a home building company is a rewarding yet laborious process. Remember your “why”; you have the opportunity to cultivate the physical space of someone’s future home. A home is a place of fellowship and love, and your construction company gets to participate in that process.