Home builders make from 10% to 20% of entire project cost. National average new custom home in America costs $785 000 and brings builder $117 750. Small custom home builder company can take on 5 projects per year and make $588 750 annually before expenses and taxes.
In our discussion we want to discuss only companies that work on custom and unique projects. Community developers, cottage and modular homes are focused more on number of lots sold rather than single unique projects.
This topic is for home owners to understand how much do builders make per project and how the costs are justified. Information we provide is also useful for those who are interested in becoming a home builder.
Here is a table of home builder earnings and expenses:
|1 Project per Year
|5 Projects per Year
|10+ Projects per Year
|$1 420 000
|# of Employees
|Before Paying Employees
|$1 280 000
Cost percentage that builder charges depend on size and complexity of the project. Easy but large jobs can go even under 10%, while small and time consuming home constructions have builder service price tag over 20%.
Why Exactly Home Builders Get Paid So Much?
At first it may look extremely expensive to hire builder and managing work on your own can save a ton of money. To become a person in charge of home construction you need to know what you are doing and come up with the best outcome spending as little as possible client’s money and time.
Knowledge and Experience – One home building project is 9-10 month long and it requires constant coordination, correction of details and action on the spot. Would you sign up for a very responsible job that lasts a year and can actually have consequences with lawsuits if you make mistakes?
Home builders make as much as they do, because they are very knowledgeable, experienced and reputable professionals that people trust with extremely large amounts of money.
Connections and Resources – With good company home owners are able to save money on trades and materials. For example if you approach framing subcontractor to price 3000 sq ft home, the chance is that reputable builder can negotiate price 10%-20% cheaper than you would.
Purchasing lumber is another 10% discount from supplier. It works out that builder can save you approximately same amount that you pay him for management and never deal with headache. To justify how much do home builders make we can ask how much money the save for clients.
License and Insurance – Not all, but most of states require license to be a general contractor or home builder. Normally it starts with some sort of education, exams and application with annual fees.
These companies or registered solo builders have to get liability insurance that covers projects for damage and bankruptcy. In other words clients are that want to try saving money by managing their own home have to look out for regulation and insurance coverage.
Management of Project – It is a full time to manage new home building. There is absolutely nothing easy about it even with years of experience. Problems happen every day on jobsite.
It can be a simple thing like making electricians clean up after themselves or contacting supplier because they sent wrong size tiles. It also could be larger problems with lifting structural beam from back of the house or complying with inspector order before he shuts down job.
Compliance with Law – Building code has to be followed regardless of who is in charge of home construction. How do you check plumber’s work without a builder if you don’t know the code? How do you make sure structure that structure of the house was done properly?
Even inspectors can overlook some details and miss important aspects. Builder company is responsible for quality of work as well as compliance with regulations. Do not forget health and safety law. Many jobsites are shut down and fines are given to those who are in charge of home construction project that does not follow safety rules.
Warranty – Home owners that manage projects without any professional assistance end up on their own after completion and have no one to blame down the line. Imagine if house starts leaning on one side or big cracks appear on structural walls. Sub trades won’t even pick up the phone, let alone deal with your issues.
General contractors and home builders have obligation to give warranty for their work and in case something ends up breaking, they can come back and fix it.
Who Do We Call a Builder? What Type of Projects do They Do?
What exactly do custom home builders do and what projects make them more money? Some companies try to stick to one specific type of work and try get clients only within those criteria. For example ABC Builders in San Francisco specialize in 2000 – 4000 sq ft modern houses and try not to do anything else. These type of companies have fastest production time, less made mistakes and potentially lower profit margin per each job.
On other hand there are companies that try to do every project they can get their hand on. And it can be from new home construction to home additions and even small renovations. It makes their schedule, project managers and even supplier be all over the place. With mixed projects builders have to allow more costs for management, miscellaneous and mistakes. Charging more does not necessary mean they earn more.
Remodel On Point suggests sticking with people or companies that specialize in specific projects and not worry how much do builders make per project.
How Much Expenses Home Builders Have per Year
Table above only shows the numbers and we wanted to explain it a little more. Remodel On Point took 5 projects per year builder with their average expenses to show readers the details and figure out how much builders make after paying bills.
Office Expenses – We combined many expenses into this category to make it easier. This could be rent of office for business purposes and meetings, computers and technology gadgets, software, phone bills and every day print outs. Expect home builders to spend $1500 per month on office or $18 000 per year.
Licenses – They have to pay fees every year to be able to perform work. Every state has different fees but the average is $500 per year.
Marketing – You cannot progress or sometimes even survive as a builder company without marketing. It can be online advertising (SEO, Pay per Click, facebook ads) or physical promotion in magazines/newspapers, on banners or print outs. We recommend medium size company to spend $3000 per month or $36 000 per year on marketing promotion to have constant jobs.
Insurance – As a company building homes, general contractors required to have liability insurance. With expensive custom project it can go as high as $3000 per year.
Travel – Everything that has to do with traveling can be included in this line. It would be direct car costs or payment, insurance, gas and maintenance. The range of how much builders spend on travel is too high, but on average we can assume they spend $20 000 per year.
Tools/Clothes – Even though home builders act as general contractors and manage the jobs, they do require tools. With it they need to be appropriately dressed for construction. It includes hard hats, safety shoes and every day clothes they use on jobsite. Our estimate is $2000 per year.
How Much Do Home Builders Make on Large Quantity Jobs?
Subdivision developers and custom home builders earn completely different amounts per project. Such jobs require supervision and specialty in many aspects. It is operated differently and we see most of high quantity production companies being much larger in size.
We cannot compare them to local custom home builder simply because they hire project managers and supervisors based on annual salary or hourly rate. There are no custom specifications and they simply follow standards.
The builder in high quantity home production is the owner of the company and fewer people hold necessary licensing, creating umbrella protection for hired workers. Hire managers are paid anywhere between $70 000 and $150 000 with bonuses for higher completion rate.
Can Builder Really Make $235 per hour?
We already know average salary of custom home builder per job and per working year, with proposed 5 projects in that period. Now we need to plug the numbers and calculate how much home builders make per hour.
If you think builders work less or similar hours, you are in for a surprise. Experienced and responsible custom home builders have their phone ringing after hours almost every day. When everybody goes back home, they are completing schedules, orders and confirming details with client.
Let’s pretend that home builders work 50 hours a week and take only 2 weeks of vacation during the year. It puts us at 50 hours times 50 weeks and equals to 2500 hours for total. Before expenses they should be making $235 per hour and just above $200 after expenses. Keep in mind, running company alone is extremely hard and usually we see two builder partners splitting these earnings in half.
With such a high earnings, efficient companies outsource labor that does not require knowledge or critical thinking. For example general contractor can justify paying $50 for delivery of small amount of materials instead of doing it by himself and wasting 3 hours.
How Builders can Cut Down Expense and Make More Profit
You may be reading this post and thinking: why am I not making as much as they say and how can I improve? Remodel On Point came up with several suggestions that increase potential.
Staying in one specific type of home constructions is extremely beneficial. If builders can afford to stay in one niche and build portfolio they can potentially be the best in it. This makes companies have routine schedules and make less mistakes in calculations. Its hard to achieve from beginning but later it pays off.
We see profitable companies just throwing money at marketing without actually knowing what works. Perform quarterly analysis to understand which marketing techniques work and what can be eliminated to cut down unnecessary costs.
If the idea is to grow business for years to come, you need to think about quality of work instead of profit per project. After few project it will be clear that hiring more experienced and expensive trades can save more money in fixes later on. Avoid beginners’ mistake to try and save few dollars on experience, and pay double to redo their work.