Bill Hermann’s face should be next to the word “entrepreneur” in the dictionary.
He owns a hardware store, Sunset Do It Best in Port Angeles, Wash., a wood-chip manufacturer, a business that harvests biofuels, and a land development company that, in a small but significant way, is helping to get new-home construction started again in the Sequim, Wash., area.
Hermann has been developing land for eight years. He owns 25 lots in one subdivision, 100 acres in another, and a few more scattered lots. For the past three or four years, he’s worked with a local builder, C. Anderson Homes and Development, to put houses on those lots, which the builder’s owner, Chris Anderson, starts only after a buyer has signed a purchase agreement.
That arrangement “came to a standstill,” says Hermann, when the housing recession hit and banks weren’t lending money for land development. But Anderson, normally a custom builder of higher-end homes, kept bumping into customers who wanted to buy houses in the $200,000 range. “D.R. Horton and Quadrant fill that niche in Seattle, but there hasn’t been anyone focusing on that market here,” says Anderson. Small wonder, since Sequim, on the Olympic Peninsula, has become a magnet for rich retirees and high-tech millionaires.
So early this year Anderson approached Hermann with a proposal: If Hermann would bring his lot costs down, Anderson would find a way to lower his construction costs, via advanced framing techniques and better deals with trade partners, so they could build houses for that price point.
Construction loans “were almost impossible to get” at the time, says Hermann. So he decided to provide Anderson with the construction financing. Each month, Anderson submits his invoices to Hermann and has four months to complete each house. On average, the construction cycle is taking 62 days, from permit application to closing, and the construction costs—including permits and septic—have been coming in at around $125,000. While much of the cost savings comes from using the same truss and framing packages from house to house, Anderson still adds some custom flourishes, such as all-plywood cabinets.
The first house, a 1,640-square-foot unit with three bedrooms and two baths, was sold to a fireman, whom Hermann says had been looking for eight months. “All he could find in this price range were homes built in the 1930s through 1970s, with dated architecture.”
When Builder spoke with Hermann and Anderson in mid-October, they had closed on eight homes, ranging from $199,000 to $213,000. The owners purchase their own refrigerators, washers, and dryers, and do their own landscaping. Gross margins on these sales have averaged around 10 percent, says Anderson.
Hermann recently agreed to purchase 27 developed lots that a bank had foreclosed on, and he and Anderson will build more workforce housing on them. (The bank also will receive a fee from the completed sales price of each house.) Anderson, who typically completes 10 to 12 homes per year, will build 17 in 2010, half of them workforce. He expects his total construction count to hit 30 units next year.
Learn more about markets featured in this article: Anderson, IN.