Discovering Talent for Home Building Business (02:21)
Brian Bahr, founder of Challenger Homes, was an accountant for a real estate company who found he liked negotiating deals. He built his own house and realized he had business skills applicable to home building.
Business Acumen (03:00)
Home building is a capital-intensive industry. An accounting background helps Bahr invest strategically. Construction skills are important for a CEO building custom homes, less so for production homes.
Skills, Confidence and Credit (01:15)
Working in real estate, Bahr oversaw construction and bought and sold some houses. When he built his own home and the banker praised his business acumen, Bahr gained confidence and credit access.
Short-Term Sacrifice (01:59)
Bahr was willing to take a pay cut to start a business he thought could succeed in the long run--an important factor in successful entrepreneurship.
Lack of Business Plan (01:23)
Bahr did financial forecasting but not a business plan. An entrepreneur cannot plan away all unknowns. Banks look at appraised value of real estate and borrower's strength.
Reinvestment and Difficulty Finding Land (02:02)
Bahr worked out of the garage at first and reinvested most profits into the business. National builders bought up available land, relegating Bahr to infills.
Personal Investment and Market Niche (01:37)
Bahr was personally responsible for his start-up loans; he sold his home and other belongings. In a market with bigger players, he created a niche of homes for people with physical needs--hence the name Challenger Homes.
Caution During Boom Times (02:08)
Bahr bought land on cash only during boom times, restricting growth but allowing him to buy up cheap land after the market collapse. He then sold at prices competitive with foreclosures.
Market Share and Joint Ventures with Banks (02:28)
Challenger has the highest market share in its region. Challenger buys foreclosed properties at above-market prices in return for banks providing construction funding.
Lessons of Bahr's Success (02:02)
Accounting experience is crucial to real estate success--if you don't have it, hire someone who does. Commitment is necessary--Bahr sold his house to raise capital.
Summary Continued (01:51)
Bahr created a niche, building homes for the physically challenged. Bahr started with spec homes, built without a pre-existing buyer, but now sells some discounted homes before construction.
Financing Your Costs (03:49)
Bahr says it's possible to start a home building business with $100,000. Banks may lend the whole cost of a pre-sold home, 85-90% of the cost (70% of the value) of a spec home. You must be able to pay the rest yourself, and go without income from the home until sale.
Bahr's first project was spec homes, but the bank required at least one presale for his second. He needed discounts to presell, especially before he established his reputation.
Financing Sources Starting Out (01:12)
Bahr used his own capital rather than bringing in outside investors. He understood that starting up meant at least a short-term pay cut, and that risk never goes away.
Financing Sources Going Forward (03:02)
Bahr tries to keep more than one bank available. He sometimes turns to private investors to avoid banking fees and delays. Local banks are more likely than national to lend to small builders.
Hiring Accountant (02:30)
Bahr says hire an accountant if accounting is not your strength. Bahr has an accountant despite his own accounting background; he believes in delegating to people who are passionate about specific tasks.
Home Design (02:01)
Bahr hires designers but works on floor plans. Designers consider form, efficiency and function.
Borrowing and Flexibility (01:42)
Bahr copies successful aspects of design in other markets. Builders must be flexible enough to change templates in response to buyers' ideas.
Focus Groups (01:46)
Bahr's market strategy influenced what he needed from designers. He got together small groups for input on design; when spouses disagreed, the one whose opinion was more likely to be decisive got more consideration.
Cost Estimate Methodology (01:53)
Bahr rejects using software to estimate costs, opting instead to get bids from lumber companies.
Profit Margin and Diversity of Design (01:50)
Bahr outsources, giving him higher variable costs but lower overhead than competitors.
Critical Path (02:41)
Projects have critical paths--a particular order of tasks. Bahr's strength is team-building, not construction.
Finding Sub-Contractors (00:54)
Challenger is the general contractor and employs sub-contractors or "trade partners." Find them by asking friends in the industry or going to sites of houses being built and talking to builders.
Paying Sub-Contractors (01:41)
As general contractor, Bahr almost never pays in advance for services. Pay on time to build a good reputation.
Project Management (01:51)
Each house has a project manager; Challenger outsources project management. Bahr makes this a variable cost dependent on sale price to help him ride out slumps and encourage speed and quality.
Loose Structure (01:26)
Challenger had just eight employees last year, relying on specialists for most tasks; Bahr resists the temptation to micromanage.
Trade Associations and Standards (02:17)
Bahr recommends joining the Home Builders Association to learn standards and practices. Most in the industry are friendly to potential competitors; builders from different areas often share ideas.
Licensing and Liability (01:38)
General contractors need licenses in most jurisdictions. General liability insurance is a major expense.
As a small builder, Bahr pursued buyers for particular homes rather than mass marketing, but has marketed more widely as he has grown. He recommends extensive market research to search for a niche.
Industry's Prospects (01:01)
If you start a home building business today, you are entering at the bottom of a market that is likely to rise.
Host's Summary of Financing Advice (02:16)
Bahr put up about $100,000 of his own money. Community banks are more likely than bigger banks to lend to small builders. Maintain lines of credit with multiple banks.
Summary of Design and Management (03:38)
Hire experts to design, identify a price point, and show designs to focus groups. Consider incorporating customers' suggestions across the board. Bahr relies heavily on subcontractors.
For additional digital leasing and purchase options contact a media consultant at 800-257-5126
(press option 3) or firstname.lastname@example.org.