One of the great things about being a new tract home investor is that you get to choose who you get to work for. Considering the dead-end, Dilbert comatose, nine-to-five work life many Americans drag themselves up for every day and then proceed to drug themselves into a caffeine-induced state, finding an alternative work niche is long welcomed. Hence, here is how you get to choose who you want to do business with. First and foremost, the most obvious and prudent choice is to select a national builder with a good reputation. The reasons are most obvious. With a national builder, you can be assured that their customer service department will be around tomorrow to take care of any minor and major issues, including structural, that might require immediate attention. This customer service attribute can not be understated. I once bought four condos in Las Vegas, where the builder was a Canadian firm that figuratively and literally left town after completing a 272-unit condo conversion.
This is a great example of the perils of real estate investing. Three months after the acquisition of the four units at this condo development, it was discovered by my management company that one of the units had lacked an actual outlet under the sink for the garbage disposal and an outlet for the oven as well. Essentially, the combination of both these missing outlets deemed both of these appliances inoperable. My first thought was, how did this condo unit ever get past the building and safety inspector? And how did it get past me during the final walk-through or the developer’s superintendent, whom I did my walk-through with? And lastly, the management company I hired to manage the units-who did their own walk-through assessment after I handed over the units for their stewardship? Notwithstanding the hilarity of the latter, the developer was slow to perform the repairs they were responsible for. As a result, I had to pay for the electrical repairs very quickly, since it came down to a potential code violation.
Conversely, had these electrical outlet problems occurred with a Pulte or KB Home, both of whom I’ve done business with before as an investor and as a primary home occupier, the outcome would have been more positive and responsive. As an investor, it is critically important for several reasons to pick a builder that has sufficient and above-average customer service. Since the flipper plans to sell immediately upon acquisition, any structural or electrical problems that occur with the property will have an effect on the perceived value of the home and, as a result, may detour homebuyer activity.
The question now becomes, how can an investor protect himself against a small regional builder that may not have a strong customer service department to take care of home warranty issues after acquisition? Here are some pointers: First and foremost, check their Web sites and look for an actual address of the customer service department. Is the department located at the developer’s headquarters or elsewhere? Does the customer service department for home warranty issues have an actual phone number, an actual staff where people work full-time, or is there just an email address?
As a continuation of how to find the right builder, it could be that the right builder may find you. By this, I mean that builders who are most respectful to investor activity tend quite often to be small, less capitalized regional players that are more anxious to sell their wares, reduce their debt and standing house stock-often called being “inventory neutral” in the home-building industry-chose this form of economization (that is, selling to investors) in order to become more profitable companies. These companies welcome a knock on their door and are less concerned about maintaining some “squeaky clean, holier than thou, look-at-me, I don’t sell to investors, milk-and-cookie boy image.” The business nature of many of the nationally Wall Street listed corporate mega-monster builders, such as Centex Homes, Pulte Homes, Meritage Builders, and Ryland Homes, is to throw out a few dog bones to the investors and make it clear that they should be happy with that. On the other hand, the small regional players couldn’t be happier to see you walk through their front door. They look upon the investors, especially closers, as white knights who bring riches and good fortune. Instead of looking at investors as lepers or some form of alien-beings that have come to eat their young, small regional builders consider investors “corporate partners” who will assist them in meeting disposition targets and reduce company debt by consuming its product. How anyone can argue with this perfect, symbiotic relationship is beyond me. Call (702) 509-1636