"In California, we had a saying: four per month is making real money, three is weak but okay, and two is a problem. One model, not four."
"When we designed new product in California to take advantage of those lots, if we screwed up the direct cost estimate by 10%, that was 2.5% out of margin. Not good, but not tragic."
"In Atlanta, where my project was, a 10% direct cost miss was 5.5% out of the margin. More than half the projected margin. Tragic."
"With 50% of the spend up front in California, the internal rate of return (IRR) was doomed if the project went slowly. The capital was eating a hole in the pro forma."
Builders in California and the East Coast have fundamentally different approaches to project management. In California, builders prioritize high sales volume and manage costs effectively, with a significant portion of costs locked in. In contrast, East Coast builders may pass on good lots and are less concerned about sales volume. A 10% cost estimate error in California affects margins less severely than in Atlanta, where it can drastically impact profitability. The differences in cost structure and market dynamics lead to varied strategies and risk assessments in project development.
Read at www.housingwire.com
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