The Path to 50-70% Profit Margins
Vitaliy’s ambitious target profit margins of 50 to 70% from custom home building aren’t just about numbers—they’re a testament to his strategic approach and keen business acumen. Here’s a deep dive into how he achieves these impressive margins and his journey in the construction industry, along with the lessons he’s learnt along the way on the UpFlip channel.
How To Get Started In Construction
Start with what you have: Vitaliy began his journey at just 18 years of age, with minimal experience and no clear plan. His willingness to learn, however, shows us that a little determination goes a long way in the real estate business.
Leverage your personal funds: Vitaliy dug into his own pocket to fund his initial projects. Teaching us the importance of financial discipline and personal investment. However, his first significant project was a $100,000 rehab house, financed through a conventional loan.
Plan early and find a good team: Planning projects meticulously is vital, along with finding a good team to complete the project in a reliable and timeous manner. Vitaliy’s team consists of about 8 full-time members, including skilled laborers and leads. Vitaliy keeps a balance between full-time in-house workers and subcontractors, with unique profit-sharing arrangements to keep costs low and incentivize quality work.
Do as much as possible in-house: Vitaliy advises doing the big ticket items in-house to save as much as you can. This includes windows, foundations, excavations and roofing to cut costs wherever possible.
Consider creative financing: Creative financing options like private money, or partnerships have given Vitaliy the boost he needs to fund more projects. These loans are better suited to construction projects with flexibility and good loan terms.
Invest your profits wisely: By flipping houses and reinvesting profits, Vitaliy steadily grew his business, aiming for financial milestones such as having a fully paid-off house by age 28. The trick to making your investments work for you, is spending the profits wisely and even reinvesting these into your real estate business to continue making more profits.
Set your business apart: Creating a differentiating factor between you and other construction businesses can be the key to getting ahead of your competition. Vitaliy’s homes are known for their contemporary modern designs, featuring lots of wood and black windows. His signature siding has even turned into a separate business venture.
Create a memorable customer experience: Providing exceptional customer service involves understanding and adapting to each customer’s communication style and preferences. Vitaliy values honesty and clear communication to build trust with clients.
New Silver’s FREE construction loan calculator is a great tool to work out your ROI and net profit on projects. Check it out below…
4 Key Challenges for Home Builders and How to Overcome Them
The pandemic caused a host of problems for the construction industry, but this isn’t the only factor that can cause issues for those in construction. There are other key challenges that home builders can face, here are 4 of them with potential solutions.
1. Supply Chain Disruptions
The world realized the vulnerability of global supply chains when the Covid-19 pandemic struck. Delays in obtaining the necessary materials can be detrimental to projects by disrupting their timelines and creating extra costs. If the disruption is bad enough, it can even cause a project to be ruined entirely.
Solution: Plan ahead and buy materials in bulk to mitigate delays and price fluctuations. Diversify your suppliers so that you spread the risk if any of them experience disruptions. Source materials locally to reduce transportation costs and time, and potentially have a more reliable supply chain.
2. Rising Material Costs
Fluctuating prices for materials like lumber, steel, and concrete can significantly impact project budgets and profitability.
Solution: Source materials as early as possible in the project timeline, to lock in prices at the start and protect your budget from future increases. Explore cost-saving alternatives without compromising quality. Build good relationships with suppliers so that you can negotiate prices based on bulk orders.
3. Finding Reliable Workers
The construction industry notoriously faces a shortage of reliable, skilled labor. Then once this has been found, retaining it poses another challenge.
Solution: Profit sharing can incentivize workers to deliver higher quality results, and remain loyal as they have a stake in the success of the project. Making sure that your workers are aligned on core values ensures a more cohesive and dedicated team. Ongoing training and development programs are another solution to show your commitment to your staff and improve retention.
4. Market Volatility
The real estate market is a volatile place, and this can impact the viability of projects by changing prices, and also cause sales strategies to need adjustments.
Solution: Be cautious with presales and make sure that you have thoroughly vetted potential buyers. Strong contractual agreements also help to protect your construction business from real estate market downturns. Flexibility is key when it comes to market fluctuations, so an adaptable business model will be the best mitigator for market changes.
Vitaliy’s approach to custom home building is a masterclass in strategic planning, creative financing, and team management. By focusing on high profit margins and maintaining a strong team dynamic, he has carved out a successful niche in the industry. His journey offers valuable insights for aspiring builders and seasoned professionals alike.
