Royal Oak Homes, a start-up builder based in Orlando, Fla., in recent weeks began the first of what its owners hope will be four communities it plans to open by the end of 2011.

In late March, it started its first models and specs at Hammock Trails, a community in Kissimmee, Fla., that has 134 developed lots and 234 undeveloped lots. Royal Oak gained access to this community by purchasing a note from Fifth Third Bank. (KB Home had already built 100 homes at Hammock Trails before the developer that owned the property defaulted on its loan and Fifth Third foreclosed on it.)

Next month, Royal Oak expects to start building at Breckenridge, a 140-lot community in Apopka, Fla. Those lots are among the 870 lots that Bill Orosz, Royal Oak’s owner, was left with after he sold his former company, Cambridge Homes—which Orosz had launched in 1991—to Hovnanian Enterprises in March 2005. Since then, Orosz says he’s whittled that lot count down to the best 450.

In Kissimmee, Royal Oak is building homes that range from 1,500 to 2,700 square feet and are priced between $138,000 and $190,000. In Apopka, which Orosz describes as “a little bit better area,” the houses will sell for $150,000 to $220,000.

Royal Oak Homes, which launched last December, is active in an Orlando market that appears to be recovering. HBW Inc., a real estate marketing firm, estimates that starts in Metro Orlando rose by nearly 16% in 2010. “For all the talk about short sales in Orlando, every builder down here is scrambling to buy lots because there’s demand for new homes,” Orosz tells Builder. “So the market is stronger than most of us might think.”

Orosz says he’s re-entering home building for a number of reasons: His sons Matt and Stephen, who are Royal Oak’s vice presidents of operations and finance, respectively, wanted to get into the business. Orosz also is attracted to the idea of starting a company again from scratch. This means building with entirely new house plans and running the company on an operating management system provided by Marks Systems that Orosz says “is virtually paperless and is triggered by iPads in the field.”

Barriers to entry are now a bit lower, too, because there’s a plethora of contractors hungry for work. “There’s more sub availability and more responsive vendors,” says Colby Franks, Royal Oak’s vice president of construction. Orosz adds that the quality of the work is so high “our first homes look like they were framed by trim carpenters." Right now, Orosz says he’s financing Royal Oak out of pocket and with two bank lines of credit.

While he’s not averse to bringing in private equity partners eventually, Orosz thinks bank financing should be sufficient for his company, at least in the short term, and adds that there’s never been a better time for banks to be lending to this industry. “We’re buying lots at half of their replacement value.” (Orosz has formed a separate land company with individual LLCs for real estate purchases.)

By the end of this month, the builder should have its website up and running. And for the next three years, Royal Oak Homes will confine its construction and marketing activities to greater Orlando. Orosz’s goal is to create in Royal Oak “a little jewel” with a clearly defined niche that would build between 250 and 300 homes per year. Beyond that, he couldn’t say what other markets or states his company might expand into. But from his days at Cambridge Homes—which at one time was building 1,000 homes per year—and from what he’s seen in the housing market lately, Orosz recognizes that “you can’t just come to the market with a single product anymore and expect to have penetration.”

John Caulfield is senior editor for Builder magazine.

This article corrects an earlier version that erroneously stated KB Home, rather than its developer, had defaulted on a loan for the Hammock Trails community.

Learn more about markets featured in this article: Orlando, FL.