Imagine stepping into a world where every house you build tells a story, where each brick laid and wall painted creates a home filled with possibilities. This was the unexpected journey of Jose Berlanga, a man who had never dreamed of becoming a homebuilder yet ended up transforming neighborhoods and lives with nearly 2,000 homes. His new book, The Business of Homebuilding, is a treasure trove of wisdom for anyone considering diving into the residential construction business.
Jose’s journey began in a whirlwind of industries, starting from childhood ventures and extending through various fields before finally settling into homebuilding. It wasn’t a straight path; it was filled with twists and turns, much like the roads in the neighborhoods he would eventually develop. Alongside his brother Tristan, whose passion for design and architecture matched Jose’s business acumen, they navigated the intricate world of urban development. Their story is a testament to resilience, innovation, and the joy of creating something tangible and lasting.
The unique allure of homebuilding lies in its ability to offer a diverse set of challenges and rewards. Before the 1800s, Americans rarely built homes without significant resources, as most land was used for farming. However, the National Banking Act of 1860 changed everything, making mortgages commonplace by 1890 and paving the way for everyday people to build homes. Jose takes us through the historical evolution of American housing, from the 1940s master-planned community of Levittown, New York, to the rise of suburban tract homes and the urban renaissance of the 1980s. These shifts provided fertile ground for smaller builders like Jose and Tristan to thrive.
For Jose, homebuilding became an addiction—a compelling blend of emotional and financial investment. It’s not just about constructing houses; it’s about creating homes where families grow, dream, and thrive. This multifaceted industry allowed Jose to master various skills, from design and architecture to finance and marketing. He advises new builders to start small, specialize, and gradually scale up, avoiding overly complex projects that can lead to costly overruns.
“Timing and financial planning are crucial in this business,” says Berlanga. “While waiting for the perfect moment might seem wise, it often leads to missed opportunities.” He emphasizes the importance of personal readiness and market conditions. “A slow market can be a golden opportunity for new builders due to less competition and more favorable conditions for learning the ropes. Establishing a solid financial foundation, choosing the right accountant, and understanding the difference between accounting and finance are key steps in setting up a successful business,” he says.
Building a reliable team is another cornerstone of success. Jose likens it to forming a band, where the entrepreneur is the leader who must recruit talented individuals. A knowledgeable real estate broker and specialized contractors are essential hires. Personal connections and referrals often lead to finding the best team members. Rather than competing with larger builders for new subdivisions, strategies for finding land and focusing on older neighborhoods with potential for redevelopment are wise.
Thorough due diligence and meticulous project planning are critical. This includes checking titles, surveys, and HOA restrictions, preparing a preliminary budget, and consulting with engineers and city officials to ensure compliance with all necessary codes and regulations. Written agreements and meticulous record-keeping are vital for avoiding disputes and ensuring smooth project progression.
Understanding both direct and indirect costs is crucial for maintaining profitability. Jose categorizes costs into variable (cost of goods sold) and fixed (operating costs), sharing insights on maintaining low overhead in the early stages. Design choices, finishes, and amenities should align with the home’s price point and target market. Comprehensive selection packages and staying informed about market trends ensure the homes built meet buyer expectations.
That said, accurate budgeting is also vital for ensuring profitability. Be sure to obtain quotes for each construction phase and track expenses carefully. There are excellent strategies for obtaining loans, and you want to be sure to have additional financial reserves for unforeseen costs. A financial cushion of approximately 12% of the total project cost is suggested to cover items not financed by banks, such as closing costs and operating expenses.
Precision and administrative diligence are essential from the moment you identify land to the final construction stages. There are a number of steps to this process, including surveys, inspections, and maintaining good relationships with contractors. Hiring the first employee and developing operation manuals are significant milestones that will help you tremendously. Then, consistent oversight and quality control ensure successful project completion.
Jose highlights the importance of a cash report to monitor cash flow, assets, and profits. Understanding these concepts is essential for addressing immediate financial needs and ensuring long-term financial health. The benefits and risks of leverage are discussed, with strategies for obtaining loans and the importance of separating accounts by project to accurately track and manage financial health.
But then, of course, as is the case in all of life, unexpected challenges are inevitable in homebuilding. Be sure to have a hands-on approach, along with the presence of a project manager to oversee construction. Managing errors, obtaining lien releases, and addressing delays are critical. There are many benefits to repetition in homebuilding, and the importance of documentation for legal protection and dispute avoidance cannot be underestimated. Precision in all the various stages of construction, from surveys to foundation pouring, will help you succeed.
When it comes to pricing your homes effectively, it requires a deep understanding of the market. Pay attention to both empirical data and your own personal experience when it comes to pricing. Beware of chasing market trends and stay true to your own business model. Negotiating with buyers and understanding their priorities are key to successful sales, so you want to treat every offer respectfully and negotiate terms thoughtfully. Considering factors beyond the price is crucial for closing deals that benefit both parties.
The sale is just the beginning of the relationship with the buyer, of course. You must remain responsive and have great follow-through during the buyer’s option period. Addressing inspection reports, maintaining ethical standards, and offering post-sale services ensure customer satisfaction, which is exactly what you want.
While Berlanga’s expertise lies in home building, his advice transcends the industry, offering valuable lessons for any business venture. The key is understanding the business fundamentals, maintaining ethical practices, and planning for growth.
For real estate professionals aiming to launch and run their residential construction companies, his insights pave a clear path to success, a path he has blazed himself and now shares his knowledge and experience with others. Follow his advice, recommendations, and strategies so that you, too, will build a successful and profitable business.
Photo Courtesy: Jose Berlanga
About Jose Berlanga
Jose Berlanga is the co-founder of Tricon Homes, an industry leader with yearly revenues of $100 million. As CEO, he has structured deals, invested, and negotiated land acquisitions and sales transactions in excess of a billion dollars while managing the day-to-day operations and building close to 2,000 homes to date.
A graduate of the University of St. Thomas with multiple degrees in Business Administration, Economics, and Philosophy, Jose’s discipline and methodic approach allow him to create customized strategies to maximize the potential of each project. His passion for business and life has led him to inspire and motivate others by being an example and a mentor who consistently delivers results through a strong work ethic. He is the author of the new book, The Business of Home Building: How to Start and Operate a Residential Construction Company.
Photo Courtesy: Jose Berlanga
Published by: Martin De Juan
