Transcription
We net over $1 million per year building three to four homes. And this is the exact step-by-step process of how we do it and what you need to do to take advantage of the same opportunities.
Now, when I first started in business years ago, I was just looking for the most palatable way to make the largest amount of money in the quickest amount of time. It just so happened that concrete was one of the businesses that produced the largest amount of revenue. When I got into the groundup business in residential homes, we were netting about $100,000 per home back in the late 1990s. Today, we net between $285 and $335,000 per home in the exact business model that we're going to talk about today.
Now, with that said, when we go in and when we got involved and evolved with business, one of the things I recognized is how expensive labor and employing the efforts of other people really was. And so as we evolved into beauty salons, dance schools, coffee shops, juice bars, restaurants, and all of the above, I realized that the downward pressure that we had even from running our concrete company and even from building houses when we got too involved in building large quantity of homes when we were building over 50 homes a year, I then realized that the cost and expense of servicing payroll, insurance, and workman's comp just to have employees out there was more than what it costed just to go out and build a home as an independent contractor and being able to go out with almost no employees and do the exact same thing for larger profits.
So when I recognized this was when I had all my Subway stores and I sat back and I said, "Okay, if I made 150 grand per a year per store, had 15 stores, I'll make about $2 million a year." And then when I got into them, I realized I was making $70,000 net per store. And we were killing it in the subway business in comparison to the average store. And then we were making about 150 on our mall stores. 15 stores were netting just over a million dollars a year. Half of what we thought we were going to make. And I thought, we had over 200 employees at that time. And I sat back, scratched my head, and I said, "You know what? This is not a business that I want to be involved in long term. It's just too high maintenance, too much involved, too high expense." I said, I told my wife one day, I said, "I'd rather just sell all these stores, build just a handful of homes a year, if that, make the exact same amount of money with no employees."
And so that's exactly what we did. We got rid of all the stores. We downsized everything that we were doing in building in 2009. And then we cleaned everything up. We were still doing the ground up in our commercial game, but on the side, as a part-time business, we took down between two to four homes every single year. And the goal was just to make between $250 and $300,000 per house, netting between $750,000 and a million dollars, almost identical to what we were doing in Subway. But the difference, zero employees. I was doing that solo with an admin on the side just doing bookkeeping admin work and taking care of the logistical stuff of the in-and-out day-to-day warranty items but outside of that we just went in independently and solely operated to build these homes.
Now this is what it looks like and here is the exact business model of what it looks like. So we go in, I stay with homes that's in the upper middle class. I love the $800 to a million dollar mark. So, if we hit about $800,000, and it was ironic, $800K to $1 million. Now, the reason I like that is because I know my profitability is going to be between $250 and $300,000. And here's how. We never go in and pay more than 15 to 20% for our lot, unless we're doing a build that's over $1.5 million. Once we get over $1.5 million, we'll allow you to pay a little bit more for your land. Doesn't matter what demographical area you're in. People will challenge me on the land. The land is not a challenge. The land just takes leg work. Most people want to sit and go on to the multiple listings and get on to Zillow and Redfin and have everything happen right in front of them on the face of their computer. It doesn't work that way. You have to get up off your ass, get into the field. You got to go drive these properties, get the names and phone numbers to the most affluent brokers in that area, come back, figure out where you're at. Once you find an affluent area that supports this right here, now we go in and we execute.
Now, some of the components you have to have is that the build cost has to be in excess of $275 per square foot. Obviously, as the resale cost, as the resale cost exceeds $275,000, your profit is going to increase. So, I really like stuff that's $300 per square foot, that's abbreviation for square foot, nationwide. Now, you're in the coastal areas, more expensive areas like California, Miami, you're over in like Salt Lake City, you're in New York, and you're in some of these more affluent areas, you're going to see prices in excess of $600 a square foot for the same type of home. Okay, these are more of your affluent areas. I like that. I'll check mark that.
Now, when we go in, we want to stay in houses that people need, not what they want. We want to go in and build what is needed in the market, not what people want. People might want a 4, 5, 6, 7, 8,000 sq ft home. They don't need a four, five, six, seven, 8,000 square foot home. They need a home that they can raise a family in. And the people that do well, people, doctors, attorneys, engineers, people that own their own private plumbing, heating and cooling, electrical companies, these people do well. They want better schools, safe neighborhoods. Better schools, safe neighborhoods. Better schools, safe neighborhoods to raise their families. And when we go in and we're looking at that, where would you go with the fluency that you have with your kids and put them in a place where they could ride ATVs, have a little bit open space, maybe have an equestrian area where there's horses, where you can go out, have a little bit of exclusivity, and still have that custom feel and but still affordability that you're not with the ultra wealthy. That's where profitability lies because this accounts for 24% of our entire population.
Now, when we go in, the way we structure this is this is going to cost you about $15 to $20,000 out of pocket. Okay? Now, the way we do this is we use business lines of credit. And the reason we use business lines of credit is because usually they're going to be higher interest rates cards, especially when you get started. You don't have a lot. They're going to cost you about 20%. Now, when you go in, this is going to be accumulating over the first 3 months of you going in to go get your build out of the ground. Let's put the math on this. If this cost you $15 to $20,000. Okay, so we have let's do $18,000 times .2 that's $3,600 a year divided by 12 * 3 months. That cost you $900 in debt service. So now you take this, let's say it cost you $21,000 to get all your soft costs done at the account of your high interest-bearing credit cards. Okay, when you start off, you're going to get your survey work. You're going to get your architecture, and you're going to go in and get your required engineering. Okay, most time it's civil and structural. If you're in California, Washington state, some of the more dense areas across the United States, you might land up needing some heating, cooling, electrical, engineering, but the vast majority of 95% of the population is going to need this at about 15 to 20K. Okay?
Now, once we go in, this is your bandwidth for lending. This is for banking. Okay, you can't go in and get lending without having entitlements. You have to put yourself in a position where the banks have something they can actually go in and they can get an appraisal on. Now, when we go in, we get an appraisal. We're going to go in, we're going to get an appraisal on this to make sure that this right here supports this right here in your given area. We're going to do the leg work in advance for the banks, putting ourselves in a position where we're building exactly a like property in the area that supports this and allows us to profit. Okay.
Now, in the first 3 months, okay, let's do this step by step annualized on how you go out and make a million dollars in one year. Okay. Your first build is going to be your hardest because you don't know what you don't know. And 90% of people are going to function on fear in their first year. And so once we go in, we get over the fear factor and they realize like, hey, this is just a business. It's not brain surgery. We're not putting a spaceship on Mars. It's just bricks and sticks, guys. It's bricks and sticks. And so when we go in, we're not going out and reinventing the world of construction and doing plasma builds and, you know, and all this other stuff, 3D building. We're not doing any of that stuff. All we're doing is going in sticks and bricks, old school buildings, been done for over 100 plus years. Okay.
Now, when we go in and we do this, this is going to take us about three months. Okay? This is about a three-month period right here. Now, in that three months, what's going to happen is you're going to be able to go in, get your permits. Once you get your permits, you're going to go in for banking at the same time you go in for permits. Okay? Now, once we go in, it's going to be a six-month build. So, now we're on month three times six, that's nine months, and we're done. Okay? Month nine, we're done with the build. Let's say that you list a house, you get it for sale, you retain somebody within the first 30 days, and it takes them 30 days to go in and facilitate lending and closing, inspections, and due diligence. So, now we have 60 more days. So, that's 9 months, 10 months, 11 months. Month 11, we go in and we sell the house. If we go in, let's take a look at what our profitability would be on month number 11. Okay, I'm going to go in. I have a $900,000 home. Okay, I have a $900,000 home. Now, we go in and the homes that we're selling are selling at about $335 a square foot. So, if we go in at this $900,000 house, $900,000, we're going to say divided by $335 a square foot. Okay? So, then our square footage on this 900 divided by 335 is going to be 2685 sq ft. Okay? This is the square feet of our home.
Now, when we go in, the last two homes we built, beautiful homes. You can go in and we're building them. In fact, if you want to go in and you want to Google 10 Basket Weaver, you can take Google 10 Basket Weaver. That house cost us $154 a square foot to build. Okay. The land actually cost us $100,000 for the land. Okay. Now, sometimes the land's a little bit more. If the land's a little bit more, we list the house for a little bit more. We build a little bit more home to get a little bit higher return on our investment to absorb the cost of the land. Now, a lot of the land in our area is costing about $11.50, depending on where you're actually sitting. This lot cost us $100,000. Now, when we go in, we pay $100,000 for the lot, we're going to go in and we're going to bridge our build cost at $154 per square foot. Now, we go in and build at $154 per square foot. Our overall build cost 154 times 26.85, that's going to be $413,000. So, our build is $413,000.
Now, when we go in, we are the broker. So, if you want to start being able to make more money as you evolve in this, you're going to make a little less than we're making on your first initial build. But to understand how we make so much, we carry the weight as the selling broker. I got my broker's license 26 years ago. So when I got my broker's license 26 years ago, I put myself in a position to be able to cut out the middleman of the selling broker. So it really cost us only about 3% to sell our homes. So when we go in, we take this 26.85. Now we negotiate our breakdown. It takes about 3.5%. We take our $900,000 $900,000 times .035 that's going to be $31,500. It's called 32K. This is our selling cost. We have no carrying cost because we don't have a loan on the property. We build our house as cash. And at some point in time, you may want to do this. People sit back and say, "Well, Jerome, that's stupid. Why would you use your own money to build your house? Why don't you use the bank's money?" I tell people, "Well, the bank's money is great, but the bank money takes me a few extra months to be able to get a bank loan." So, if I have to go in and spend 60 days working with the bank to get a construction loan, providing them all the documents that people like Alec are doing right now with his construction loan and go through all the grid work that it takes. You're gonna have to do that to get into the business initially. But once I do that, I could go in and I could turn-key this build. My builds take me five months full cycle. And we list them a few weeks before we get started to retain a buyer within the first 30 days of selling that home. So if full cycle, we have five to six months to be able to build the house, secure a buyer, and go in and finish the house out, we're looking at a six-month build. So, in 6 months, okay, we build and sell. Okay, 5 month build, one month sale. Okay, now when we go in, let's add these costs up. We have 31 $100,000 plus 413 + 32,545K total cost minus $900,000. That's equals a $355,000 net profitability on a house. Okay. Now, let's say that we had some additional expenses on that property. If we went in, we have some additional costs and expenses on building out this property. And let's say that we only make $300,000. Okay? We made 300K. Now, if we go in and we simply duplicate this where you build two the first 6 months, two the second 6 months, and you build four, that's $1.2 million net profitability in one year. This is how we go out and we compound it, guys.
Now, when we go out, we do three of these at $355. We multiply these times three. We take 355 * three. That's $1,065,000 in net profitability. With three builds, no employees. We do three builds, we can manage that 100% of that all by ourselves. No employees. We don't even need an admin. We can go in and take that down without any type of lending. Now, when you guys go in, your profitability is going to be a little closer to about $200, $250,000. It's going to take four builds to hit a million dollars when you first start off.
Now, the second that we go in, one of the things I want you to recognize over here that there's a $20,000 piece of this puzzle that you need reimbursement on. When we go in and we get lending on this stuff, guys, there's a spreadsheet. The spreadsheet that the banks have is going to have every line item on it that you're going to have for your entire build, all costs. The first line item is going to be the land. We get the bank to pay for the land for us at closing. Okay? The way we do this is we take an equity spread on the actual build. So, we go in and we take an equity spread. If we have $900,000, I'll give you an example. Alec just did a build. The builder gave him 70% of the land value and they're going to give him 90% of the build value. Okay? Now, we knew that the house is only worth $900,000, but we wanted to play comps conservatively. So, what we land up going in and doing, and this is just some bonus material, guys. I know I was only going to go over how to make a million dollars. I'm just going to give you a little bit of bonus material. [snorts] So, if you want this bonus material, comment down below. Let's build. But you got to click, you got to subscribe to my YouTube channel right now in order to get this bonus material on today's video. Click and subscribe. Pound that thumbs up button and then comment down below. Let's build. That way I know that you made it this far in the video. And this way when I look at you at my comments, I sit back and go, "This person is serious about building and they watched all my bonus material."
Now, we go in, this is a little trick of the trade, okay? You don't learn this in school. Now, when we go in and we take $900,000 of that $900,000, let's say the land $110,000 or let's just take our scenario, $100,000. The bank is willing to give you $70,000 for the actual land on this scenario right here. Now, our build cost is going to be inflated because of all this equity that we have. So, what we're going to do is we're going to take the $900,000 value. Let's say that comps just don't come in perfectly. And let's say that they only come in at $850,000 because we're really building one of the nicer products in the neighborhood. Not the biggest product, just the nicer product in the neighborhood. So, we sit back and maybe there's only one comp that supports our build, but the rest of them support an $850,000 valuation. So, if we go out and we underwrite our build at $850,000, that means that if we subtract the land, that's the $750,000 build cost. So, now we have $750,000 that we put into this spreadsheet for the bank. Every single one of these line items is a bucket. Each bucket has a line item for electrical, mechanical, plumbing, land. It has it for dirt work, foundations, framing, framing labor, cabinets, flooring, you name it. Every single bucket has a line item. Those line items have to land up meeting that $750,000. Now, whether your profit comes on the front end on paper, but on the back end on the actual build really doesn't matter. I just choose to take my profitability on paper on the front end and display that to the bank because once the bank approves this, as long as it supports comps in the area and the comps, we're going after that $850,000. Now, we're not even going to comp it at the 900 that we actually sell it for. We're going to do be a little conservative to make sure that if the build is not a liability to the bank and that we're a little more conservative and the bank sits back, goes, "Okay, these guys are conservative. We could hit that $850,000 valuation, no problem, conservatively speaking. And now we can go in and execute based on a $750,000 budget and the $100,000." Now, if the bank is going to give us 90% of $750,000 times 0.9, that means that we have $675,000 that the bank is willing to give us on the build. Now, both of these together is $745,000. $745,000 that the bank is going to give us to build this house. Now, we're utilizing what's called a contribution of equity to get this done. We're taking the equity that we've created in the actual entitlements and that's how we get our money.
Now, when we go in, let's back up here. We know we're getting $745,000. All we really need in order to go in and do this, ladies and gentlemen, is we don't even need $545. What we really need is we need these two right here. We need $513,000. And the first 100K goes to buy the land. the very first draw on the actual build, which is what we're doing right now with Alex's project, my camera guys, right now, the first check that gets written. And we're gonna go in this $20,000 that we go in and we actually execute on right here. That's $20,000. We're going to get that in our very first draw. And the reason we're going to get that in our very first draw is because we have this timeline that we're doing right here. This timeline's important. We're only three months in to building out this project. And in three months, we get 100% of our money back. So, as you go in and you start building that property, immediately the second that you get that $20,000 back from the bank, you go retain another lot for build number two. And when you retain the lot for build number two, you start all the entitlement process and you start going in and you start getting architecture and engineering on that build immediately. So that way, you're amped up, ready to go for build number two. the second that house sells. So, in month number six, if you're me, or month number 11, if you're you and you're just getting started, you're a little slower, we go in and the day that that house sells, the day that it funds, the very next day, you line up the tractors, you have the flags laid out on the lot, and it's go time. You already have your loan locked in, you have your lending locked in, everything's ready to go. You don't move and skip a beat. And now you go in, you revolve immediately. So, if you go in and you only make 250,000 per build, you go in, it takes you 11 months, the great news is that now you're only 5 to 6 months away from your second profit of another $250 to $300,000. So, if you go in, you look at your months, now you're at month number 16, 17, you're month number 17. And in the 17th month of the year, guys, month 17, you're already at over a $500,000 net profitability in just month number 17. Now you do the exact same thing with your second build, but now you have cash flow. Now you have a half a million dollars where you can go in and do what I did right over here. So now we go in, you have a half a million. You can go in and build your next one almost completely cash. You're only $13,000 away from building it cash. You can do that working at McDonald's. And so now we go in, guys, and we do two builds after the 17th month. We get two builds ready to go. And now we go in and we build two homes in the exact same time frame. Six months later, month number 17, 18, 19, 20, 21, 22, 23. By month number 23, we have two more builds out of the ground and another $500,000 in net profitability and $1 million net. We sell them both. Month number 24, two years later, $1 million in your bank account. Year number three, we compound that and we go straight in for four builds and we start them at the beginning of the year. And that's how in month number 24 to 36, so you have another $1 million. What are you doing right now where you can put $2 million of net profitability in your pocket?
Now, this is a simple theoretical example. And understand that although it's a simple theoretical example, this was a slower process than I did back when I first started building. I was building the same magnitude of homes. They were less expensive in that era because the cost of inflation that's went up just over the last several years has been unbelievable. In fact, Alec and I were looking at homes that that I sold. The exact same homes that I'm selling today that are selling for $900,000. We were selling for sub $600,000 just 5 years ago. So, inflation has happened. Profitability has went up and it's going to continue to go up. The question is, how ambitious are you? Are you willing to put your head down and put in the work? Does this take work? Yes. Are you going to have hard days? Yes. Are you going to have set days that you second guess yourself and wish maybe that even possibly you shouldn't have done it? Yes. But at the end of the day, God has a solution for every single problem that you're going to encounter, provided you pay attention, you get excited, and you never quit. You want to go out and you want to compound from zero to a million in 24 months and from 1 million to 2 million in 36 months. This is a very doable business model, provided you put your head down, you get to work, and you get started today. You go out, compound your success, click and subscribe to our YouTube channel, pound that thumbs up button, give us a little love, and comment down below on what you want to see on our next video. God bless and go out and crush it and go out and compound your success.