There’s a massive need for custom home builders right now because of the housing shortage. People want customized homes—whether it’s on their own land or in an expensive neighborhood where they’ve bought a lot. They want their home tailored to their specific needs, and they’re willing to spend a lot of money to make it happen. Then, starting a home building company would be a great idea.

What Is Home Building Company?

As a home builder, here’s how it usually works: You contract with homeowners. Someone buys a piece of land and wants to build their dream home. They usually have some idea of what they want their house to look like, but your job is to help them refine that vision. You will work with them to determine the number of bedrooms, whether it’s a one-story or two-story home, and based on the land they have, maybe even design a walkout basement.

As a custom home builder, you’re really focused on tailoring the home to your client’s needs. The nice thing about this is that you can take a white-glove approach. Many people who are willing to spend a lot of money on a home don’t want to go to a standard, cookie-cutter home builder that offers 10 floor plans and says, “Pick one.” A custom home builder says, “Hey, we’re going to customize this house for you. It’s not going to be cheap, but we’re going to build your dream home.”

Starting A Home Building Company: How Much Does It Cost?

Now, let’s talk about how much it costs to start this business. I really like this business because the startup costs are relatively low—especially if you have some experience in home building or contracting.

Here’s what you’ll need to get started:

• A website: This is essential for establishing your online presence.
• Entity formation fees: Setting up your business entity will cost around $500 (depending on states, you will be able to make big savings).
• Marketing: To get your name out there and secure potential contracts, you’ll need to budget around $20,000. Yes, that’s a lot of money, but if people don’t know you exist or that you can build homes, they won’t hire you. You’ll need to spend this upfront to build awareness, and then word of mouth will start to take over.

For home blueprints, most people don’t know exactly what they want to build. So, you will need to purchase some blueprints, either online or from a local home engineering company. These blueprints will serve as mock-ups to show potential clients the types of homes you can build. Budget around $10,000 for this. You don’t need a ton of blueprints at the beginning. Just enough to demonstrate your capabilities.

Lastly, insurance will cost you about $5,000 to start.

So, your total startup cost will be around $35,500. That’s not a huge investment considering the revenue potential.

How Much Can You Make By Starting A Home Building Company?

So now, let’s talk about the most important thing, how much you can make as a custom home builder.

The average gross profit on a home-building job is around 20%. Gross profit means that after paying all the subcontractors and other expenses, the home builder makes about 20% on the job before their own fees. Now, the net income for the entire business is around 10%. That’s after you pay for permits, fees, and all the other costs that home builders have to cover to get the house completed.

So, about 10% net income. To give you an example, I will use an average home value of $700,000. If you’re outside of major cities like New York, LA, or even parts of Texas, you’ll see nice custom homes being built for around $700,000. Obviously, the price can go up from there, and the higher the home value, the more money you’ll make. But for starting out, I’d say $700,000 is a good sweet spot.

On a $700,000 house, you will gross about $140,000, and your net profit will be around $70,000.

Now, the main issue with this business is that you’re not going to make that money right away. It takes about 10 to 12 months to build a custom home. That means in year one, you might only complete one house. But as you move into year two and beyond, and as your business grows, you’ll have more houses under construction.

If you can build six houses in a year, here’s how the numbers play out:

• Your gross profit would be $840,000.
• Your net income would be $420,000.

This is based on six $700,000 houses. Obviously, if you build more expensive homes or less expensive ones, the numbers will change. I’m just using $700,000 as an example so you can see how you could realistically make $840,000 a year with just six houses.

One thing I really like about this business is that you can subcontract almost 100% of the work. What that means is you’ll hire framers, roofers, drywall finishers, and other specialists to handle the actual construction. Your role is to manage the job site, ensure the subcontractors show up on time, and make sure the work is done correctly and to a high standard.

If you’re building six houses at once, that’s probably enough work for just you and maybe one employee. I really like how scalable this business is. You can start with just yourself, bring in solid revenue, and then reinvest in hiring an administrative assistant or additional help as you grow.

Turning a Profit Quickly

I mentioned earlier that the startup cost for this business is around $35,000. With just one house, you can double that and achieve a 50% profit margin from your initial investment. That’s something I really like about this business—it allows you to turn a profit quickly, which shows that you have a successful operation. From there, you can reinvest and grow.

Now, let’s talk about the next steps if you’re serious about starting this business. I always say this when I’m considering starting any business: I become my own biggest critic. That means I think about all the ways the business could fail, tear it apart, and then figure out how to prevent those issues.

The Importance of Sales and Marketing

For this business, the biggest challenge is sales and marketing. You might have blueprints, be a great contractor, or even have built a house for someone before, but if nobody knows you’re a home builder, it doesn’t matter. People won’t care unless your marketing is strong. Sales and marketing are the lifeblood of any business. Without them, you don’t have a business because you don’t have money coming in. So, before you even think about starting, make sure you have a solid sales and marketing strategy in place.

Building a Strong Network of Subcontractors

Once you’ve got that figured out, the next step is to ensure you have great subcontractors. That means networking with subs before you start. You need a reliable person for flooring, drywall, electrical work, and every other aspect of building a house. It’s also important to have multiple subs for each area so you can get competitive bids and ensure quality.

Trusted subs are critical because the quality of your company depends on the quality of their work. If your subs do a bad job, the house will be bad, and you’ll end up with complaints or even legal issues after the house is built.

Ensuring High-Quality Home Design

Another key factor is the quality of your blueprints and designs. Your houses need to look modern and appealing, with different styles to suit different clients—whether they want a country-style home or something more contemporary. This requires research and immersion in the home-building industry to ensure your designs stand out.

Once you’ve addressed these three areas (sales and marketing, subcontractors, and design quality), you’re ready to take the next steps to start your company.

Legal and Financial Steps

First, you will need to create an LLC or corporation. I recommend consulting with a local attorney to determine the best business structure for a home-building company in your area. They’ll know the state laws and regulations and can help you set it up correctly.

Next, you will need to buy insurance. Insurance is crucial for protecting yourself against property damage, bodily injury, and other liabilities that come with building homes. When you’re working with subcontractors, things can go wrong, and insurance is there to cover the unexpected.

You’ll also want to create subcontractor agreements. This is another reason to work with a local attorney—they can help you draft contracts that limit your liability if a subcontractor makes a mistake.

Finally, I always say that becoming a business owner is the best decision I have ever made. I’ve earned more money than I ever could as an employee, and I’ve had the freedom to run my company with full creative control. I have built the culture I want, traveled when I wanted to, and taken time off on my own terms.

If this is something you’re passionate about and you want to become a business owner, I say go for it. Plan ahead, follow the steps I’ve outlined, be creative, and take the leap.