The Elements of a Successful Home Building Investment

Matthew

Matthew Connor here, host of the Cyber Business podcast, where we feature successful business leaders, top law firms, green energy companies and more. Today, we're joined by a master of his craft, a man who's been building beautiful custom homes for over 13 years, the founder of Cabin John Builders, Joshua Rosenthal. Josh, welcome to the show.

Josh

Thanks so much, Matt. Super excited to be here with you.

Matthew

Well, thanks. Well, before we get into it, a quick word from our sponsors. This episode is brought to you by CyberLynx.com. That’s Cyber-L-Y-N-X.com. CyberLynx is a complete technology solution provider that ensures your business not only has the most reliable and professional i.t service, but also has the right cybersecurity solutions to ensure your business stays productive and safe.

Matthew

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Matthew

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Josh

My pleasure. Very happy to be here.

Matthew

All right. So your why don't you tell us how you got got started in in the custom home building business.

Josh

So technically, I am second generation in the custom homebuilding business, though, like many stories with your family, it's not, you know, a direct route. My parents, I think the most interesting part of this, including my mother, were custom builders for over 30 years. She was one of the first people to work on detailed selections back in the eighties, when people didn't want to let you do your own thing in your house.

Josh

And about the time I was in middle school, they started their own business somewhere along high school. My dad sat me down and said, So Mom and I have this business going. We're figuring out how to grow it. Is this something you think would be part of your future? It'll help us understand what we're doing in Classic Smarter than Everybody high school fashion.

Josh

I think my answer to my father was I don't think I'll be a builder. But if by some chance I am, it certainly wouldn't be with you all sitting back, you know, very full of myself. High school. I've got these other grand plans. Ended up going to college, going into a completely different industry where I had some success and was getting to a little bit of a crossroads.

Josh

This was about the time that I was about 20 plus years ago, about the time I was getting ready to get married. Thinking about my future had always been entrepreneurial in nature, had started a charity in high school, a business in college, and started thinking, I want to do this. I want to do something for myself. And I started going through all these options of what I would be doing, how I would be doing.

Josh

It probably spent six months and one night said to my wife, You're not going to believe this, but I think I want to be a builder and I think I might even want to do it with my family. She looked me dead in the eye and said, Thank God you finally said that. I've been waiting for this to come out.

Josh

But I knew if I brought it up, you know, it would be enough. So at the time, my brother had actually started working with my parents straight out of school. And he's my current business partner. So I went and I actually talked to him first because that would have been sort of the future of the company. Long story short, we all decided to work together, which we did for maybe six or so years.

Josh

And then when the 2008 nine downturn happened, my father's a many decade veteran of this industry sort of said, okay, I've had my ups and downs and ups and downs. Look, I don't want to go on this roller coaster anymore. It's time for us to move on and retire. And my brother and I sort of sat down, thought about what we want to do, and decided that we actually wanted to start our own company with new branding, new everything for a number of reasons, part as a new beginning, be able to start really lean in an economic downturn which turned out to be a great learning experience and opportunity to really grow a company properly.

Josh

But also we wanted to be a little bit more technology reliant, a little different approach to customer service, a little bit of a different approach to how our job sites were managed and we felt the best genesis for that was in a new company, and that was Kevin John Builders.

Matthew

DICE Well, of course we we appreciate technology here, you know, and so tell us a little bit about that. What kind of technology to use do you use to kind of stay above the above the fray, if you will, you know?

Josh

Okay. So and, you know, part of the story, as you may know from your experience, is the construction industry is inherently change and technology resistant. So it's probably a decade or two behind other industries. And as recently as maybe 15 years ago, we're building these complex homes where you're picking out hundreds and hundreds of different unique finishes that go into them.

Josh

And that process was managed by a set of three three ring notebooks, one in the office, one on the job site, and one that belonged to the customer. And there was like a weekly meeting where we'd actually have to swap pages in and out to update. And it just didn't make sense. It was required because we've got all this information to keep track of, but there wasn't a good solution.

Josh

So one of the things that we started with, I think very early, if not at the very beginning of our company, and we still partner with a company called Builder Trend, who is a software service production management software. They've grown over the years to have accounting modules and other things, but when it sort of started, it was how do you organize your selections, how do you organize your schedule, how do you organize your basic job paperwork and communicate to a client in an online manner?

Josh

And so that really became the core of what we started doing, because also recognizing most of our we work on some very high end and luxury homes, the majority of our clients are extremely busy, most often two working adults in the family, and they're not necessarily engaged and able to look at something at 10:00 on a Tuesday because that's when works with our business schedule.

Josh

So then also opening their world up to 24 seven access to go away, Which fridge were we going to pick out or let's look at that change order. Now you can do that at one in the morning from your hotel room in San Francisco on a business trip instead of in our offices or on your job site weekly.

Josh

So that was sort of the foundation that we wanted to take forward and move with that. And it also allowed us to have a more open book and sort of cost plus approach to our services, which we think is the best way to go.

Matthew

Wow, that's fantastic. Yeah, No, you're right. That was not that has not been my experience with builders. You know, for them to be so technologically forward at least 10 to 20 years, you know, in, in in the past for sure. I think sometimes 30 to 40 years in the past, it's like really? And you ask any sort of new thing and it's just now this is how we do it.

Matthew

We've always done that. Okay, So now that that's good for you.

Josh

Yeah. Now it's a real challenge in the industry and in part because there is this underlying, let's say when it comes to waterproofing details of your home, you don't want your builder necessarily to be an innovator or for you to be the guinea pig. More specifically. So there is this ingrained. If it works, don't break it in building, which makes sense for the technical side of the industry, but it doesn't for the operations.

Josh

So that really was where we said, let's think about this differently. Let's work on our operations, Let's let's see how we can push this.

Matthew

I love it because, I mean, we've all become so accustomed to that with everything we do now, I mean, from Amazon and, you know, just being able to select what you want, have it delivered so fast. You know, you work with somebody online, you expect there to be some sort of portal where it's all all your information's there, and yet you typically do not get that with a home builder.

Matthew

That's that's for sure.

Josh

So very cool.

Matthew

All right. Well, let me ask you. What advice would you give to a to somebody looking to to buy a home? Build a home? You know, I guess first buying versus building, What's the advantages? Disadvantages?

Josh

Well, so I think there are some major advantages to a new home. Obviously, you have especially a custom home. You've got control over making sure that that home fits you directly. And part of that is a cost and space thing, but also part of that is design and how you choose to live in the home. So if you're raising school age children as an example, if you're designing and building your own home, you can make decisions like what do we like our children doing their homework and using their computers in their room or out in an open space.

Josh

And you can make that values based family decision and then allow your home to accommodate that. Do you make the kids bedrooms a little bit bigger because they're almost like mini apartments and they do their homework in there and they entertain a friend. And that's sort of the independent style in which you like to raise your children or do you want that to be a smaller sleeping room where it really is just a bedroom and their personal things and there's a shared open space for homework.

Josh

The family congregates in a basement or a family room or a den. And so all these little things that are not necessarily cost related create an influence in your home in how you live it. What are the paths going to be in, who does the grocery shopping, who does the cooking? Is that communal, Is that individual? And all of those factors come into laying out a custom home.

Josh

So I think that's really one of the premier advantages to custom home. Then you get into this factor of with a new home in general, everything has a born on date that's about the same. So you've got a much longer time period until you have maintenance, You have all these warranties running concurrently and in addition to getting what you want, you get to just sort of live in your home.

Josh

Buying an older home. There often is maintenance or how do we improve this or should we address this? And obviously we do a lot of renovation work and I'm not going to say that's a bad thing, but it is a different experience and a different sort of exploration into your home, Each one.

Matthew

Absolutely. Okay. All right. How about, you know, advice you give people? How do you you know, how should they go about finding, you know, in shopping for a let's say they decide I want to I want to custom build my house because I love that that whole approach you just took of, look, you want to have it, you know, your kids, do you want them in their rooms?

Matthew

You want them study. That's brilliant. So let's say you decide. Yeah, that makes a lot of sense for us. We want to build our own. What advice you give them on how to find the right home builder? How do you do that?

Josh

Obviously, it's a complicated issue, especially because our industry has a bad reputation to move past. So early along there was a lot of mistrust of contractors. This question is going to leave my side. Am I getting ripped off? These are tropes that surround our industry, and some of them, frankly, were well earned. So you have this automatically sort of tension filled.

Josh

Am I getting a good deal in my picking the right person? Are they really reliable going into the process? And I think the biggest piece of advice I have for people is both to be open to what the industry has to offer and also to use the skills that you already have. I see a lot of people who try and out architect or builder, the builder intellectually go, Oh, well, I know we need to put this in or I know we need to do it this way.

Josh

I am probably a better professional builder than the average client who comes to us. That being said, all of my clients have made major decision life decisions with their partners. They have hired key professionals in their life lawyers, doctors, financially who handle issues of safety, massive amounts of money. They have a track record understanding Do I work best with a large company, a small company, direct contact to an owner, a large chain of supervision?

Josh

What are the environments where I feel the most comfortable? Where I feel my money is being handled properly? And I think if people would spend more time shopping in that manner, thinking about what serves them best, who they want to work with in terms of type of an organization, type of a process that that really is the top level piece of advice.

Josh

You know, then we obviously get into some of those little early things in terms of being penny wise and pound foolish. And, you know, when you get into these tempting situations of I've looked at multiple prices and two of them are up here and one of them's way down here, and your mind says one thing, your heart says another.

Josh

That gets really complicated. And that's why I sort of rely back on like use those skills. You have. Don't sit here and try and dissect like which guy's using a better plywood. Or maybe this is the best you use, the skills you've honed, use the intelligence you have to help guide you through that process.

Matthew

And would you say you tend to get what you pay for in home building or it really just kind of, you know, covers the whole whole gambit? You might get a great home builder who's really inexpensive or know if you're going to get great, you're going to pay for great. How does that work? You know, would you say in home building.

Josh

I think you get what you pay for, though. I will sort of break that up a little bit because there are two areas to look at. Number one is what actually goes into the construction, where you certainly are going to get what you paid for. And the other is the builder themselves and the type and style and size of the business.

Josh

There are some very large companies that are extremely successful that I would to build my home. I consider them colleagues and friends. They charge a larger overhead in profit. I do than I do because I've got less than a dozen people on my team. They've got 40 plus. They're routinely working with a higher level of insurance, higher level, and that's a likewise.

Josh

There are some through sole proprietor, smart builder in a truck who can execute a project, who've got less of an overhead in profit than I do. So I think that is one way to understand, in effect, what you're doing. But then I think especially living in an area as populated and as construction heavy as the Metro DC area, the markets have weeded things out.

Josh

There are there aren't a lot of unbelievable electricians at bargain basement prices because they have figured it out. And likewise, there aren't people who are just ripping. You know, a good electrician is just ripping everybody off and making 50% profit because again, the market won't allow that because there are thousands of projects going on on a daily basis in our area.

Josh

So that would sort of be my other advice is the market has done a lot of the work for the consumers now.

Matthew

I mean, I think that's that's really interesting. You don't often hear that. I hear it all the time when it comes to restaurants. And, you know, so we live in the same same town here. And honestly, a restaurant, if it if it survives long in Bethesda, it's a pretty good restaurant. I mean, you know, you get plenty that come in and then they go and, you know, like I guess it wasn't very good.

Matthew

The ones that stick around are actually pretty good. So it's kind of cool to hear that that same kind of deal the market is is kind of having its way with the the the pieces that shouldn't be there kind of gets rid of them. That's which I hadn't heard about builders but you're right you do often hear that whole you know, you hear horror stories about builders who, you know, took people for a ride or whatever it was.

Matthew

I mean, we had the we had a crazy builder for hours. I mean, he was nuts. I mean, he's in jail now, but and rightfully so. But I mean, that guy, you know, is we were lucky, but he was just, you know, drunk all the time, high all the time. It was like, seriously, if it was after 5:00, don't answer the phone because the guy is either drunk or high.

Matthew

And it's it was it was a miracle that the house got finished at all. And the ones after us did not. So it was.

Josh

You know, it can be a huge challenge. And I think that's also, you know, a little bit of why you get into building a house and running a construction company are not the same skill. So you may have been lucky with someone who was very good at the technical aspects of completing a house and you were able to push through the process to get the home you wanted completed.

Josh

But it was miserable because they don't know how to run a business and to interact with you well. So I think that's the other thing is really understanding who you are in this relationship, what you will talk to your builder. If you're building a custom home more than you talk to your spouse for the next year. Yeah. So there is a lot of do we want to work with these people and at the end of the day it comes down to do we trust them?

Josh

Because you're going to get all sorts of information, critical information, spend ten grand extra on this, save some money here. This isn't required. This is important for safety. And if you can't go into that complex conversation with a level of trust of I'm getting given the right information to then be able to make my decision, you're going to be in for a very unpleasant ride.

Matthew

That isn't that that true? I mean, it it really is. And our guy, he was not only not good at running a business, he wasn't he was not a nice person. I mean, he just wasn't good to talk to. But it was such a it was such a good deal. But again, you get what you pay for. So and and that unfortunately happened to the people after us.

Matthew

They, you know, they weren't able to kind of manage that very difficult relationship to, you know, to the finish line. And and he was just yeah, he was a bit of a monster. Honestly. It's crazy.

Josh

I'm I'm so sorry to hear about that. And that honestly is part of what we have to fight as reputable builders. Yes, these people exist. I'm sure you end up with a beautiful home despite all the effort you had to put into it and the anxiety in the work. And that's a real story in our market of somebody who was out there sell or was out there selling homes.

Matthew

In the market. They took care of him.

Josh

Right. And the market took care of him. But that that is what we're, you know, working against or working with in our industry.

Matthew

Yeah. And well, I mean, so how does that work? It's not like you you go and obviously you get licenses, right. You've got to have what, a contractor's license, insurance, things like that. Right. But there's no. So it makes you wonder how, you know, you can keep getting these people in there, but then they get cleaned out. Like you said, if they don't if you don't create a good product or service, at some point, word gets around, people stop, stop doing it.

Matthew

It's not like it's you've got no way of knowing. So they may have perfectly good intentions going into it, but then just lack the ability to do the business side, to lack the, you know, the whatever it is. It's interesting. Okay. So so let me ask you, what are some of those mistakes besides, you know, hiring a contractor like we did?

Matthew

What are what are some of the typical mistakes that people should kind of learn from or try to avoid? What would you say?

Josh

Oh, I think one of the things and this is really for comfort and enjoyment more than anything, is to be honest with yourself about your budget and your expectation. So we have had many clients we've worked with who say, No, no, this is my budget or this is what I want, or maybe even take a set of plans and reduce it and value engineer it down to a number they're comfortable with, only to spend in the end, what they said they weren't going to because instead of making that one painful decision, they make it 15 times over by taking everything out and then adding them in bit by bit and this isn't to say that

Josh

you have to spend all the money in the world, but it is to say if you're really going to spend 1,000,005, don't try and fool yourself and everybody else into thinking you're going to do it for 1.25. Spend all this energy sort of unraveling the project to then spend the time and energy to get, you know, you're going to have a bumpier road and a longer timeline to get to the same exact point where you started that.

Josh

Yeah. And again, that's not necessarily about coming and telling me, hey, I've got all this money, this is what you need to do. But understanding realistically what it's going to take and how you're prepared to do that.

Matthew

Yeah, Well, and then do you think that is that based off of say, you know, you do a little searching in the area and you're like, oh, homes that I like sell 415. Right. Like homes of about the right size the right is that basically how you you you come to that number when it comes to building as well or when it comes to building your custom home, do you need to expect to pay, you know, more because.

Matthew

Well, it's you know, there's the building costs. How does that work?

Josh

So it's a little bit of both. So part of it is understanding what kind of investment you're looking to make in this property. And so especially when you get into a custom home, what things are you doing that are just for yourself? So as an example, you're you're a business owner, you've got a podcast. If you decided, you know what, I'm going to build an office for my business as part of my house and I want to have a dedicated podcast studio and I want to be able to accommodate three key employees for whatever it may be.

Josh

And this is actually something we've done, which is why I'm using this as an.

Matthew

Example.

Josh

For someone, is that's not part of the like a house goes for this on my street. That is something you're doing for yourself very well. May be a great investment, maybe a good investment for your business. So you're sort of looking at what is it that I want to do that sort of fits in? And then now that I'm going down this custom road, am I going up or down from that point?

Josh

Am I saying, Hey, I want to be on the street? But it's a street full of 6000 square foot five, six bedroom houses. That's not what my family needs were 3200 square foot, three bedroom, simple lifestyle. But we want to be here, you know, now you're taking that number and sort of adjusting down. Or if you're building out your dream or, you know, it's very interesting.

Josh

One thing I say to clients often when we're meeting is what is this house to you? Because for some people it is an investment. For some people it's an art project or sort of a personal statement of style. For other people, it's a place to live between 2023 and 2027, and those are not the same thing. You don't have the same approach and you very well may not have the same budget.

Josh

So often it's getting back to understanding what is this for me? What is my investment to that? Does that leave me in a very sensible place in the market around me or a place I am comfortable with in terms of the market around me and then you sort of build from there forward?

Matthew

Okay. I would imagine it's got to be really tricky and honestly difficult on the builder side to say, Oh, we want to build this home because, you know, and you, you know, somebody comes to you and they say, Hey, I want to build a home like this. I mean, great. Maybe they already have the drawings. Do you get that a lot?

Matthew

They come with the architect drawings already done, or they're like, Hey, I want to build a cool house. How much is that going to cost? I mean, do you get you get we.

Josh

Get both of those fairly common, but often even if we get plans, they're in the early stages because they want to understand what does this house look like and what does it cost before spending tens of thousand dollars on the final engineering, the final plans for apartment. And that's a reasonable time. And I think the right time to be bringing a building professional into your project if you don't have one yet because like, okay, now we've got a good you know, if we go with the school analogy, we've got a really good outline for our term paper or really good rough draft, and that's the time to bring all the parties to the table, figure

Josh

out what we're really doing, whether it meets your family's values. So we're basically at that point trying to take a bunch of different information. There's a little bit of technical information. We've got some historical data on what things are called cost. We have an exploratory conversation to sort of guess where these people are going to end up because finish items matter.

Josh

I mean, not being 100% serious, the same size kitchen roughly we've done with $25,000 worth of cabinetry and $180,000 worth of cabinetry.

Matthew

Wow.

Josh

So obviously it's important for us to ask questions that will tease out that information because very few people can walk in and go, and I got to have that German cabinetry where you fly in the install certified installer and it's, you know, thousands of dollars per. But very few people are coming to the table saying that. But that may be their taste, that may be their intent, that may be what the architects thinking.

Josh

So we're trying to pull that out. And we do look at and I say this to people often we have less control over the pricing than people think. So much of it is based on the regulation, the materials, the what physically goes into the house. Sure, we have a fee and we disclose that we're open to discuss that.

Josh

That's only one part of it. It really is a combination of the builder, the architect, the homeowner. If they have landscaping, lighting designers, the them included as well, sort of figure out what is the realistic budget to accomplish the goals of the group. And I think that really leads to the most successful projects as opposed to this is what I want someone tell me how much it costs is independent exercises, which again is how a lot of things started in this industry and that is better is teamwork than an exercise.

Josh

I'm sure it's very similar to your business where you have a good meeting, you get some collaboration, you figure out what needs you're able to address. You're going to knock it out of the park as opposed to, Hey, tell me what it costs.

Matthew

Yeah. Oh, for sure. Every time I get when it's just when it's just about the money, then they don't understand, you know, the product or the service, you know, if particular case, the the home and how that's just it's not going to work. I can't you can't tell somebody, Oh, it's going to cost 1.5 million. You know, there's a million things that go into that.

Matthew

Right. And so I think I would imagine that's got to be really you know, I guess half art, half science. Right? At the end of the day, you're taking out like making a best guesstimate based off of years of experience, knowing where the the the you know, how much products are starting to cost in, you know, are they are prices going up?

Matthew

Are they going down in terms of, you know, whatever lumber, you know, tile, concrete, everything. Right. I mean, so that's that's a tough one. I mean, yeah, it is.

Josh

And it's certainly, you know, often we're seeing that first round of like, hey, what's this concept house going to cost? That may be a year to two years before the stove is put into the house. So we are sort of having to project where the market's going and at the same time, we have to be pretty good at it and have an understanding because it is a very reasonable question from a homeowner to be like, this is what you do all day, What is your what does it cost like that?

Josh

That's not an unfair question and expectation. And, you know, we go against there's this concept of like square foot pricing. But a lot of people you like what's your product cost per square foot. I personally am not a big fan of that because I think it's a bad estimate of a bad us. And what I mean by that is if you get a beautiful wolf range put into your kitchen, that's $10,000.

Josh

Your square foot cost under that stove is thousands of dollars per square foot. The back of your kid's closet is probably like $91 a square foot. So what matters is what's going into the home, not the site. And you get sort of these people going, oh 300 a foot, 600, a foot, 1200. It's what's going into those feet.

Josh

How are you using your space? What are your site conditions? Those are the real things that matter to get a true price. And I think often people are going into is going, oh, it's going to be you know, I've heard out there 350 a square foot to build a custom home. I'll design this thing with that in mind, go out and bid it, and then it's $400,000 over what they were expecting to spend.

Josh

And everybody goes, What do I do now?

Matthew

Back to the drawing board.

Josh

Back to the drawing board, or do we have the capital to make this happen? But it doesn't match with what we thought our investment in our neighborhood. Well, and that's obviously a scary and difficult place. And you're already tens of thousands of dollars down the line with your architect. So it creates a stress and a problem.

Matthew

And that's makes perfect sense. Well, let me ask you. So we often like to to wrap things up by asking people if they have a, you know, a mentor or somebody who is really influential to them in their you know, in their particular field. Care to share?

Josh

Yeah. So I probably have a pretty long list which starts obviously with our parents. They were custom builders, a little bit of pioneers in the industry and well, both of them had a tremendous influence on us and taught us a lot. In some ways, my mom was almost a bigger influence to us in the terms she was a little bit of a trailblazer.

Josh

She did an amazing job of balancing being a parent as well as being a professional builder. And that's where I learned is maybe not before, but I remember, you know, she did her desk some mornings at 530 because she wanted to be at my brother's soccer game at three in the afternoon. And and learning that sort of balance as a parent, as a business owner, but still being accountable to your clients.

Josh

A lot of it was sort of learned through that experience of watching them. And obviously there's tons of technical information that we learned from her dad along the way and truly how to build a house. And then I'd say the other part is I'm very blessed to be part of a program called The Builder 20, which is run through the National Association of Home Builders, where they get 20 noncompetitive builders from across the country.

Josh

And we actually are lucky enough to have someone from Australia in our group and we sort of serve as an external board of directors. We get together a couple of times a year. We really dig deep into each other's businesses, into the finances, and I've got a couple of fantastic colleagues and mentors there. Specifically, there's a gentleman named Ralph Cataldo out of basically builders in Cape Cod, Massachusetts, like honor to say one of the best builders in America, fantastic businessman, built a tremendous operation and delivered on time and great customer service over the years.

Josh

So to have people like him as a sounding board, as, you know, an outside person, he's never going to build in our market. I'm not building vacation homes in Cape Cod to really chop it up and learn from and grow with. It's been one of the best business experiences and growth experiences in my life.

Matthew

Oh, that's great. Well, can you tell folks where they can find out more about you and and your business?

Josh

Sure. So I guess the easiest one is Cabin John Builders dot com, which is our Web site. We also have all the various social media is available at CDB online and by any means. If you want to talk to me directly, you can just reach out emails generally best Josh juicy chat cabin John Builders dot com. So we try and keep it all simple.

Matthew

Perfect but we'll put links to that below the video or to the size wherever it ends up being but almost always below. And Josh, thanks again for coming on. It was a pleasure having you on today.

Josh

So much fun to chat with you. Thank you so much for having me.

Matthew

You got it.