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How Do Small Teams Manage Big Builds? (EP41)

Trust the Process Podcast | Season 2, Episode 41 | 28 min | with Krista & Michael

Episode Summary

From the outside, a homebuilder can look like a large operation with endless resources — in reality, it's a small team juggling multiple projects, timelines, and decisions all at once. Krista and Michael pull back the curtain on how the business actually runs day to day, where their time and energy really go, and the early stages most people never see: land acquisition, planning, funding, and the long lead time before anything ever breaks ground.

What We Cover

  • How a small team manages multiple developments at once

  • Where the team's time and energy really go

  • Why construction is only a small piece of the process

  • The unseen early stages: land, planning, and funding

  • The long lead time before ground ever breaks

Listen to This Episode

Full Transcript

Krista: Welcome back to Trust the Process Podcast, where we talk about new home construction, the real estate industry, the market, and everything in between. Hi Michael, and welcome back, everyone. Thanks for being here. Today we're going to talk about how we run our business. One of the things you tell us you enjoy is getting to see behind the scenes of what we do, so here we go with another "pull back the curtain."

Michael: Hello.

Krista: We have, as you know, lots of different projects going, and Michael wears a lot of different hats, all of us do. So I'm curious how much we can convey about how that actually happens. From a viewer's perspective, they see all these projects and assume we must be a massive company with tons of hands and labor. How do we keep all these homes moving with all these plates spinning? How do you decide which one gets your time, resources, and money? I'd love to hear how that tap dance comes together, because I'm in it and some days I don't know how it all holds together. You're our Oz, you know. It looks big.

Michael: Ha. Well, I'm the puppet master and I sometimes don't even know how it all comes together. You know those cartoons where it's a lion's shadow, but then it looks over and it's actually just a little mouse? That's what it feels like. We're just a little mouse behind a big shadow.

Krista: Yes, working the levers behind the curtain.

Michael: The challenge of developing, or the beauty of it, is that things take a really long time. So in many ways you can lock into projects without having everything figured out right away. I love the restaurant analogy, because a restaurant is so in-the-moment, but there are so many lessons in it. In the restaurant business, the day you open you have to have your menu, your staff, everything figured out, because you get one shot. With development, we have a long, long horizon. So when someone brings me a parcel of land, or I find one hunting on my own, I don't need to know all the details right away. I just need to know fundamentally: do I like the zip code? How do I feel about the market? What would that parcel require to be properly built out, and is there demand for that product? For instance, if it's RS6 zoning on one acre, that's six homes. What can we put there that pencils out? We'll have roughly $250,000 to $300,000 into each parcel. As a rule, you want at least a four-to-five-times multiplier on that for the end sales price. So I do quick math: do I think there's $1.3 to $1.5 million of demand in that area for five or six houses? If yes, I do what I can to get the property under our control, whether we buy it or get a right of first refusal while we do the tentative map. Then internally, especially you and I and Ryan, that's when the project becomes known to us. The rest of the company, the sales team, the design team, don't need to know yet. Janelle, our project manager and assistant, knows it in the context of getting it to contract and helping me get it over the finish line, then she largely steps away and focuses on other things. The sales team has no idea, intentionally, because if I throw too much at them they can't focus on what I actually need them to sell now versus what's coming in two or three years. And I don't necessarily want buyers knowing we have another project a mile down the road, because they might say, oh, I'll just wait for that one. We have an 11-home setup at Argos and Westridge, our sister communities, coming in at a little more than half of what Serene runs, because those are 6,000-square-foot home sites versus 18,000, two-car garages versus four-car. There are reasons buyers don't always see.

Krista: Right.

Michael: We're taking our style down-market to that neighborhood, and I don't want that detracting from someone pulling the trigger on Serene or devaluing our other projects. So it's all intentional, but internally you and I need to know, because we collaborate on what product goes there. We bounce ideas around and tweak as it goes. Ryan and I have similar conversations about build costs and whether a project is really viable and what it'd take to make it viable. So we start with a lot of unknowns, and it makes it look like we have a ton of projects, which we do, but the bandwidth doesn't really get tied up until you get closer in, like where we are on Westridge and Argos. Serene we're out of the ground now, so that's field management, buyer management, sales, that's when I can deploy the rest of the team. Those don't take as much of my bandwidth even though they're more exciting. You'd think Serene must be taking all my time, but no, it's the new projects far up the pipeline that no one even knows about. We tease them a little on this podcast, but they're not released publicly, and we're talking 2027 and 2028 closings. Those take my bandwidth, the city council meetings, the notice of final action, the tentative map, utility improvement plans, water network analysis, the Department of Transportation, the right-hand turn lane, all the non-glamorous things that take a lot of time and money. Our Westridge project, surprisingly or not, ended up basically fully funded. We found out Monday that I'm not having to deploy any more capital. In fact, I'll get some of my capital back out. Should I be surprised?

Krista: That's amazing. And no, I'm not the slightest bit surprised it all came together for you. Good energy, good intentions, and things align.

Michael: It feels like that sometimes. It has to be passion too. I hate patting myself on the back, but I was so relieved at that news. I worked over the weekend on a pro forma, sent it out Monday morning at 10, and by 10:15 we had a funding commitment for the entire project, infrastructure, dirt work, walls, the homes themselves, even a little interest reserve. It was an absolute gift.

Krista: Great people just find you. Amazing.

Michael: Yes, we have to pay it back, with interest. But that particular company, I've tagged them as my angel investor because they're up for whatever I bring them, including Foundry Square. They believe in the company, our mission, our values, and they love what we bring to Southern Nevada, which is really flattering.

Krista: That's wonderful.

Michael: So yes, phenomenal news mid-morning Monday, and now here we are Friday.

Krista: And think about the bandwidth that frees up when you're not having to deploy capital, whether from your own funds, which you've done many times, or pulling from the company, or having to sell this community to pay for that one. When that headache isn't hanging over you, it lets you move at a different pace and lets the company grow at a rate that gives us way more freedom.

Michael: Yes. Exactly. If you asked what I do in a given day or week, I'd joke "nothing, I golf." But honestly, 15 to 20% of developing is fundraising, even when it's your own funds, whether raising capital or liquidating something you own. I've had to sell rental properties to fund the company, take personal loans, all kinds of things. When you have 15 or 20 homes at $2 million, that's a lot of construction cost. There are weeks I call half-million-dollar weeks, where half a million goes out in invoices, fees, permits, payroll. It's an insane amount to raise. So as a developer, 20 to 25% is purely fundraising and worrying about where the next round of construction costs comes from. The further down the road we go, and the more faith other companies have in funding us, the more that headache goes away. It's gone from about 40% of my bandwidth a few years ago to 20-25% now, because I have confidence that if I don't have it lined up right now, I can get it. And look what's happened, we'll be at 120-something doors in the next 18 to 24 months. That's a direct result of my bandwidth shifting away from fundraising and into actual development work, zoning changes, tentative maps, all of it. When that time frees up, look how much can happen. It's been exponential growth the last year and a half to two years. I started feeling really comfortable with funding in early 2023, and look how far it's gone. That comfort let me hire you, hire another project manager, promote Janelle into a better role, retain talent by paying people what they're worth, and expand our sales team, which we just did. That keeps freeing up more time.

Krista: So we can keep up with the growth.

Michael: Right, by building systems and getting buy-in. Like I tell the team, we all own quality. If you see something on one of our projects, tag it, fix it, do whatever you need to do. I think of it like a hotel executive who walks the corridors, checks the rooms and bathrooms, even uses the restroom, because you notice angles you wouldn't until you actually live there.

Krista: Right.

Michael: That gave me the idea, what else do you do in your house that, as a builder, you wouldn't notice but could lead to a warranty call or lower satisfaction later? Use the dishwasher a couple times, open every cabinet, basically life-test it before we hand it off, before we even call it done. I was spending a lot of my time on that and it was stressing me out. With more completions this year, that became unsustainable, which is another reason I brought in a project manager.

Krista: And we're only in Q1.

Michael: When we talk about which projects get attention, I'd say my time now is about 50% on the front end of development, tentative maps and the nuts and bolts, plus fundraising. The next 30% is quality assurance and making sure the company runs like a well-oiled machine. The last 20% is catch-all, managing people, vendor and employee relations, even making sure people know I'm not upset with them when I'm just quiet and in the zone.

Krista: Right.

Michael: All of which is to say it's a very demanding business. It takes about 70 hours a week to keep this going, between my desk, the field, and calls, not to mention all the time I spend thinking about it. I look at Trust Home Builders like a newborn baby, except it's 10 years old and still in diapers. I raised my son largely solo, so I know that feeling, this is your baby and it should take up a lot of your life, attention, and love. I'm not a disgruntled employee at all. Sometimes I wish I had a bit more work-life balance. But when you're doing what you love, there's no substitute for it. Trips are fun to get away from being on call, but I miss it when I'm gone. I get home and want to know about the new product offering, or I'm on my phone looking for parcels.

Krista: Even when you do get away for a weekend here and there, we still hear from you. You're gone a few days and still reaching out, "I thought about such and such," because that's when your mind really starts working.

Michael: Yeah, exactly.

Krista: "I've got a few minutes, let's talk about this, let's brainstorm this idea."

Michael: Literally conversations we've had. That's a real scenario. We've 100% done that.

Krista: We've solved world problems on those calls. And the reality is there's never really a stopping point. These projects are so far upstream that people don't even know they exist yet, they haven't hit the company's radar. It starts there for you and it never ends, all the way through the final walkthrough. You may not be there for the key handoff itself, but you're there in the moments leading up to it, the day before, walking everything with the project managers, finalizing details. I can't think of a single home start-to-finish you haven't been there for.

Michael: Right. Everything. All of it. Even the warranty, the full year of satisfaction. The company is your baby, but so is every individual project. People have no qualms reaching out beyond the warranty period, and we're a small company, we want to keep people happy. Half the time it's minor stuff, and we're already out there, so let's just send someone and make them happy. But it still rolls up to me. It's like the kid who's moved out and calls from his apartment, "Mike, I don't know what happened, my gas got shut off." Okay, we'll handle it. You can also use a farming analogy. Humans are kind of agriculturally wired, we like reaping what we sow, planting seeds of future rewards. Westridge is our crop, we'll harvest it in 2027. Foundry Square is a crop, we're planting the seeds now, and we have to tend the farm, water it, keep it healthy, and hopefully harvest the yields we planned. That's how I keep my sanity, because there's a long stretch before any gratification. So you have to find wins early, the first time you see the tentative map, or when they email over how the neighborhood will look and you realize you get to name the streets. That's a win, collect it. Then you start designing the product, I email you and Ryan the floor plans, look how cool this is, take the win. They're not all financial wins. I can't imagine doing this without loving it. Put me in a restaurant, make me stay up until two in the morning closing down the bar, I'd be miserable. It's just whatever you're cut out for.

Krista: It has to follow your passion.

Michael: A restaurant owner might find my business incredibly dull, "I don't care about houses, I want to schmooze at the bar." That's just different wiring. But if I had any other mindset than I have now, I'd 100% burn out. There are so many problems, it's constant problem-solving, and a lot of people just aren't grateful for what you do, it can be a thankless business. So you take the victories.

Krista: When you don't know what's happening behind the scenes, it's eye-opening to learn that the majority of your time and resources are spent before there's even a home on the ground.

Michael: Oh, it's crazy. On our two newest ground-breaks in SouthShore, we added up permits, architectural, and engineering and it was about $50,000 a house, on 3,200 and 3,500 square foot homes. That's roughly $15 a square foot just to get authority to start building. I barely spend that to frame the thing. It's insane, just in paperwork. The idea of delivering a home with a build cost starting with a "1 handle" is slipping away. It's harder and harder to do anything at $150-160 a square foot, it's almost always in the $200s at minimum, and depending on finish level we've had homes as high as $300 a square on build cost. That doesn't count carrying costs, insurance, soft costs, or company costs. We had a buyer beating up one of our sales agents saying homes in that SouthShore area look more like $400 a square. I ran the market and it was about $533 a square on average, including resales, and we're new construction. So if buyers expect the $400s and our build costs are in the $300s, and land works out to about another $100 a square (a 3,500-square-foot home needs roughly a $350,000 lot), we're already at $400. If we sell at $500, great, but we have to cover interest, agency on the other side, and my sales team, so we really need around $525 a square. It shows you how fast it escalates.

Krista: It's interesting to see where the resources stack up. To think how much time, effort, and money goes into what's still just a dirt lot and a plan. It's crazy.

Michael: Yes. In civil engineering alone, take a six-home subdivision like Serene or Argos, you're easily spending around $100,000 on drainage studies, civil engineering, improvement plans, water network analysis, topographical surveys, and impact studies, not even the fees, just the studies.

Krista: It's just gone.

Michael: Boom, gone. And then landowners say, well, this parcel can hold six homes and sales can support $2 million, so these are $350,000 lots each. As if the utility laterals, civil engineering, impact fees, dirt work, grading, and retaining walls are free. They take what the finished, improved land should be worth, multiply by six, and say it's a $1.9 million parcel. No, it's more like one million, because we're going to spend almost the price of the land again on improvements. Southern Nevada water tap fees alone are $15,000 per lot, so at five lots that's $75,000 just in tap fees. After $100,000 on engineering we're down to $425,000, then grading, sewer, water, gas, electrical, retaining walls. Serene was almost the exact same, we spent basically what we spent on the land again on improvements. Landowners don't realize that, and that's the big disconnect, and why there's not a ton of land for sale.

Krista: Interesting.

Michael: They assume it can support eight homes at $2 million sales prices, so the line is X. No, it's not, you're assuming it's all ready to go. If you want to get those parcels pad-ready, then we can talk, maybe you get that number, because you've closed the timeline gap and taken out the unknowns, you've done all the work I'd otherwise spend 20-some percent of my life doing. So anyway, that's kind of how we do it. The funny part is construction is the easiest thing for me to delegate, it's the most tangible and somewhat easy to train. It's the other stuff that's the challenge. At the end of the day it's job security, and it's not easy, but it's very rewarding, you just have to find the rewards within yourself, because a lot of times buyers won't give you that feedback. Once people settle into their homes, the awe wears off. Customer satisfaction is something every business struggles with, look how much car companies spend on J.D. Power and the satisfaction scores. So it's completely natural.

Krista: That's a little peek behind the scenes that helps answer some of those questions. I know it's still a lot, but a lot of the "mystery" really isn't a mystery, it's just hard to envision if you're not sitting in the seat.

Michael: Agreed. It's fun to pull back the curtain, and the people who appreciate it will get something out of it. If this podcast existed 10 years ago, I'd have been its number one subscriber, I would have loved it. So maybe we just made something we'd like.

Krista: It would have saved you a lot of headache and heartache. People appreciate the information and insight you give, so thank you for it. And thank you all for being here. Hopefully you learned something, and we look forward to sharing more on the next episode of Trust the Process Podcast. See you then. Bye bye.

Michael: Of course.

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