10 ways custom home builders can expand their second-home business
Contributing Editor Jane Adler examines 10 ways custom home builders can grow their second-home building business.
Tapping into that lucrative second-home market can be tricky. Marketing to faraway buyers is no easy task. Then there's the challenge of keeping a project on schedule with limited client face time, all while trying to coordinate remote crews. Sound impossible? It's not. We asked custom builders how they created a successful second-home business. Here's their best advice to get you started.
|Second-home owners will likely want vacation-like amenities such as this vanishing edge pool in a project by Bauer Homes.|
Don't try to be all things to all buyers. Narrow your focus. Target a certain location, a particular buyer, or even a way of life.
The Great Camps of the Smokies, for example, is a new development for those who want a custom home in the wilderness with some very civilized touches. Located at the western side of North Carolina, Great Camps is situated on Lake Santeetlah. It has 80 miles of shoreline, and much of the area is a protected national forest.
The development is tightly managed to give home buyers a wilderness experience. Custom homes are built in clusters. A handful of 10-acre estates restrict actual construction to no more than a quarter of an acre. About 300 acres of the 350-acre project are being left untouched.
"We are not selling homes but a lifestyle," says Jose Rosado, chief executive at the IBEX Mountain Group, the Miami-based developer. Rosado, who previously redeveloped a big project in Vail, Colo., thinks too many mountain communities offer a manufactured experience. He's after buyers who want an authentic retreat within driving distance. Buyers, paying as much as $2.5 million for a home, are coming from Atlanta, Knoxville and Charlotte. "We have a very narrow niche," says Rosado.
Residents have access to natural amenities, such as 10 miles of trails, two white-water rivers and fly-fishing streams. A wilderness concierge is available to take homeowners on trips, which can vary in the degree of difficulty based on the homeowner's preference. On the civilized side, the property includes a swimming pool and fancy clubhouse.
So far, most buyers have used Rosado's company to coordinate construction with Robbinsville Custom Moulding of Robbinsville, N.C. Rosado's best advice: "You have to understand what it is you want to build and who you are selling to."
Successful custom builders quickly learn to take projects near their base of operation; nothing substitutes for personal attention. But resort areas can be hours away from the office. The challenge: how to build a house from afar. "It's really a question of logistics," says Al Trellis, president at Home Builders Network, a consulting firm in Columbia, Md. One way to overcome the disadvantage of distance is to open an office in the resort area. But, Trellis cautions, it must be done right.
A second home usually means a second space for entertaining. Be sure to include large gathering spaces such as the kitchen and great room in this Bauer Homes project.
Profitable builders usually have three things in common, Trellis explains: They know the product, the market and the people who work for them. "You can't build a new product in the mountains three hours from your office using people you don't know," says Trellis. Builders must have at least two of the three key elements in place before opening a new office, he adds.
Trellis recommends having an experienced employee at the new office to oversee work and find new business. Make an alliance with a local developer that knows the market. Or, buy a ready-made franchise with a well-defined product. "That's a good way to mitigate your risk," says Trellis.
Two years ago, Silich Construction opened a new office in Vail, Colo., about 100 miles from its headquarters in Aspen. Company President John Silich wanted to expand the company because Aspen's custom home building business is small and highly regulated, and Vail is a larger market. Silich put experienced employees in the Vail office, which competes for luxury resort home business as well as multi-family and development projects. "My business has morphed," says Silich. The Vail office has been successful enough that Silich is now contemplating another new office in Denver and one overseas.
Controlling a custom project from a distance is probably the No. 1 challenge builders face. So Dennis Allen got creative. He started a division that builds pre-fabricated vacation homes. The homes are built at Allen's construction yard, the pieces are shipped to the site and then assembled there. "Most of these homes are second homes or homes that people plan to eventually retire to," says Allen, president at Allen Associates of Santa Barbara, Calif. The pre-fabricated houses average about 1,100 square feet in size and typically cost about $200 to $275 a square foot, including construction costs. Home buyers purchase the land.
Shipping the house isn't a big deal, Allen says. A 1,000-square-foot house with all the fixtures, appliances and flooring fits in a single shipping container. "You have to plan it carefully," notes Allen. Most of his pre-fab houses go to Hawaii. But Allen also has units in Northern California near Lake Tahoe and in Bay St. Louis, Miss., where homes were built after Hurricane Katrina.
The houses look like custom models in several styles, such as plantation, southwestern, adobe or Cajun. In most cases, Allen sends his own crew to construct the house. He sometimes hires local contractors, though Allen oversees their work carefully. And he admits he struggles to find good labor in faraway locations. "We still have to visit the site every couple of weeks."
Revenues from the pre-fab business should hit about $2.5 million in 2007. The margins are a little higher than Allen's traditional custom home building business, but, he adds, it was several years before the pre-fab business was in the black. "It's taken a while to ramp this up."
Holding land is difficult nowadays, but custom builders must have access to prime parcels, experts say. Vacationers who want to become homeowners usually can't nail down a lakeside parcel on their own.
Optioning land is an alternative. Builders should maintain ties to land brokers, too. But focus on choice locations, says consultant Trellis. Pick lots right on the golf course, on the waterfront or ones with really good views. Choosy buyers making a discretionary purchase today want the best locations. "Stay away from B properties. People are looking for value, but they still want the real deal," says Trellis. "You can't sell them sizzle now; you have to give them steak."
Scott Lowell builds luxury vacation homes in Lake Geneva, Wis., a small resort town favored by wealthy Chicagoans. Lowell currently has about 40 lots in three gated communities on the lake. "It's important to have lots," says Lowell, president of Lowell Management Services. He admits it's risky to carry land nowadays but he believes it's essential to own lots or to have access to good parcels through a developer. "Buyers come here for a few days, and it's a fast pace to close a transaction," says Lowell.
Land is getting scarce too. A waterfront lot on Lake Geneva costs about $2 million. But only a couple are left, Lowell says. Some of his work is teardowns. He's also looking for properties on Lake Delavan, a nearby lake that has less pollution and is less expensive than Lake Geneva.
Successful custom builders already know how to nurture relationships with referral sources such as architects, developers and real-estate agents. But making a strong alliance can boost second-home business.
McNally Homes of Windermere, Fla., has been building custom homes in Central Florida for 20 years. The company built 60 of the custom estates in the town of Celebration. McNally expects to build about 25 homes this year.
Amid the downturn in the primary home market and a dwindling supply of choice lots, McNally recently decided to make a push into the vacation home market. As such, it was selected as a feature builder for the Ginn Reunion Resort southwest of Orlando.
"This is a good opportunity to expand but with a high-level client," says Linda Kling, director of sales at McNally. The property has three championship golf courses, a large water park, swimming pools, a tennis center and a new five-star hotel. "This property is unique," says Kling. "We don't have a lot of competition in this price range and at this amenity level."
Another plus: Ginn Resorts have a big following of overseas clientele. Foreign buyers have lots of purchasing power now because of the strength of their currencies relative to the U.S. dollar.
McNally currently has a custom model home under way at Ginn Reunion. Home prices will range from about $700,000 to $1.8 million. McNally also offers furniture packages so the homes can be entered into the resort's rental pool. Kling says buyers want an easy way to rent their homes — another benefit of the alliance.
Second-home buyers are different. A buyer of a primary residence is concerned about how many bedrooms the house has and whether the garage is big enough for all the cars. Vacation home buyers are mostly making an emotional purchase.
"You have to grab the buyer's attention," says consultant Trellis. "It's all about execution." He says if you can get a buyer to the property and they walk in the front door and see the lake right out the back window, there's a good chance of hooking them.
"You have to have units to show people," says builder Lowell in Wisconsin. "They have to be able to touch and feel it."
Bauer Homes of Tucson, Ariz., is building a model home as part of the local parade of homes being held in February. The home has mountain views and features the spacious entertainment areas sought by second-home buyers who want to host family and friends. The old-world, Tuscan-style house has as much outdoor living space as indoor space. The great room has a sliding 10-foot wide door that opens to the outdoor area, which will be furnished. The outdoor areas also feature a suspended bar, a fire pit, an eight-person spa and stone columns. "Second-home buyers want to see a house and know that it can work well for their entire family," says Sandy Bauer at Bauer Homes.
When Silich traveled to Dubai, he noticed that the skyscrapers going up everywhere were being built in about half the time it takes to construct big buildings here. "I wondered why it takes so long to build a house," says Silich. He knew vacation home buyers were usually eager to have their homes finished as quickly as possible. But he realized he couldn't fast-track projects the way it's done overseas, where regulations are lax and crews work 24-hour days. So instead, he improved his operation's efficiency. "If the resources are put behind a project, it can be fast-tracked," says Silich, whose company has 35 employees.
Silich recently fast-tracked a 20,000-square-foot house for an international diplomat from the
Middle East. The diplomat wanted the house to be completed as quickly as possible so his family could use the home as a winter ski retreat. But, as Silich explains, the project was more like constructing a hotel than a house. It had back-of-the-house corridors for the staff and special security features. Twenty-hour work days were the norm, until near the end when crews worked 'round the clock. The house was completed in two years rather than the four years it might have taken under normal conditions, Silich says.
The price premium for fast tracking ranges from 20 percent to as much as double the cost. Overtime and expediting the delivery of materials accounts for most of the premium, Silich says.
With projects booked until 2011, Silich has carved out a reputation for turning out high-quality projects quickly. But he cautions other builders to carefully pre-qualify customers who want a fast-track home. "The buyer has to be willing to put up the resources to support the schedule."
Most custom builders get their business through referrals or word of mouth. Builder Lowell has a reputation of creating fabulous vacation homes. But now he gets a fair amount of business from his vacation home clients, building their primary residences, most of which are near Chicago.
Past clients are probably the best referral sources, builders say, but don't overlook other avenues, such as real-estate agents and designers. Carl Chretien builds homes in Saco, Maine, and most of his work comes from an architect who designs second homes, says Chretien, president at Chretien Construction. Other jobs come through the local homebuilders' association. Chretien's advice: "Get referrals."
You can't grow a vacation home business if your timing is off. Building cycles for vacation homes differ from traditional jobs. Vacation homes in the south or in ski areas have to be finished in time for winter. Homes in northern climates, such as those around lakes, must be ready for summer.
Dave Stormont sold his custom vacation home building business in North Carolina last March. But during his 20 years in business, projects were started in the fall in order to finish by Memorial Day, the beginning of the summer season. One roadblock was finding subcontractors in March and April when everyone was busy. "You have to plan ahead," says Stormont.
Build a good reputation that leads to new business — which also means providing good service. "Never say no to a client," says Silich in Aspen. A customer's request may be unreasonable, but Silich always responds that he'll research the idea. He then later presents options to the client that are doable.
A vacation home building business won't grow without careful attention to communication. After all, chances are you'll be working with a client from another city and coordinating work schedules with subs in the field. In-person meetings with clients will probably be infrequent, so the sessions must be well-organized.
One builder constructed a vacation house for an Exxon executive who lived in Tokyo. A 12-hour time difference meant conference calls were scheduled when Stormont was having breakfast and his client was just sitting down to dinner.
Nowadays, builders rely on e-mail to communicate with clients. Silich creates a Web site for jobs. The client and project team can access the site for a daily report on the project. He also sets up a Web camera so the client can see the work in progress. Says Silich: "When it's going well, it's a great process."