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  1. #1
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    Mar 2005
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    Default Good news for Allan

    http://www.reportonbusiness.com/serv...l_gam_mostview

    Imagine the building boom in Huston with oil at $100 and beyond.

    The USA has been burning the cheap stuff for a 150 years, and now it looks like the world will have to buy the expensive stuff from the USA.

    Mark

  2. #2
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    Jun 2004
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    Default Re: Good news for Allan

    I don't know Mark, Fannie Mae has categorized Houston as "soft market":
    Quote Originally Posted by Appraiser's Forum
    Subject: Texas Metropolitan Areas - Designated as Soft Markets - MUST READ!!!!!!
    Importance: High



    Geez folks...........

    Today Fannie Mae began issuing the following verbiage on their DU approvals in certain areas within most of our Houston Metropolitan Counties:

    Loans may receive the following message from FannieMae's Desktop Underwriter (DU):

    The subject property has been identified as being located in either an area of declining home prices or in an area where it may be difficult to assess home values. The lender should carefully review the appraisal to ensure that the appraiser has appropriately analyzed property value trends and overall market conditions to arrive at the value provided. The lender should request additional support from the appraiser if it determines that the appraisal does not accurately reflect current market conditions (e.g. the declining property values field is not checked when market conditions suggest otherwise.) Please refer to our Property and Appraisal Guidelines in Part XI of the Selling Guide.*
    As a practical matter all this means is that lenders making Federally insured loans must reduce the LTV by 5%, so it will only affect the lower end of his market.

    The high end si going to suffer everythere though:
    Quote Originally Posted by MSNBC
    The main fuel for the spending was easy access to credit. Banks and other financial institutions were willing to lend households ever increasing amounts of money. Any particular individual might default, but in the aggregate, loans to consumers were viewed as low-risk and profitable.

    The subprime crisis, however, marks the beginning of the end for the long consumer borrow-and-buy boom. The financial sector, wrestling with hundreds of billions in losses, can no longer treat consumers as a safe bet. Already, standards for real estate lending have been raised, including those for jumbo mortgages for high-end houses. Credit cards are still widely available, but it may only be a matter of time before issuers get tougher.

    What comes next could be scary—the largest pullback in consumer spending in decades, perhaps as much as $200 billion to $300 billion, or 2%-3% of personal income. Reduced access to credit will combine with falling real estate values to hit poor and rich alike. "We're in uncharted territory," says David Rosenberg, chief North American economist at Merrill Lynch, who's forecasting a mild drop in consumer spending in the first half of 2008. "It's pretty rare we go through such a pronounced tightening in credit standards."

    Don't expect the spending to come to a screeching halt, however. Remember the stock market peak in early 2000? It wasn't until a year later that tech spending fell off the cliff and the sector didn't hit bottom until 2003. The same delayed impact holds true here. The latest retail sales numbers, which showed a soft 0.2% gain in October, suggest that spending may hold up through this holiday season.**
    * http://appraisersforum.com/showthrea...hlight=houston
    ** http://www.msnbc.msn.com/id/21838083/
    Last edited by Dick Seibert; 11-21-2007 at 04:25 PM.
    “It is not an endlessly expanding list of rights —the “right” to an education; the “right” to health care; the “right” to food and housing. That is not freedom. That is dependency. Those are not rights. Those are the rations of slavery – hay and a barn for human cattle.” - Alexis de Tocqueville

  3. #3
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    Jun 2004
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    Default Re: Good news for Allan

    Mark:

    Actually Houston is fairly diversified, oil is not our only major industry. We have a large port, lot of banking, trading, huge medical complex, NASA, farming, ranching, and of course strip clubs. It has become a real international city, only New York City has more Fortune 500 companies. Geographically Houston is like a small state, it is so large.

    The housing market is very diverse, but no doubt the tract builders are suffering. I think we will still build 25,000 houses next year, I only want to build 5-6.

    A lot of the stats are comparing present sales/starts to past years, which were record years. A 30% drop would take us to a normal year. The markets I am in are still very hot.
    Last edited by Allan Edwards; 11-21-2007 at 04:49 PM.

  4. #4
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    Nov 2006
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    Default Re: Good news for Allan

    I want to be like Allan someday. Off topic, but he seams like the kind of builder I want to mature into.
    Rob
    O'Brien and Sons Construction
    Swansboro NC

  5. #5
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    Default Re: Good news for Allan

    Rob:

    That's my biggest fear, be very careful, but I don't see North Carolina on the list - yet.
    Quote Originally Posted by Wall Street Journal
    The IRS recently signed information-sharing agreements with state labor or work-force agencies in 29 states, including California, New York, Michigan and Ohio. Combining resources will help the IRS and the states "reduce fraudulent filings, uncover employment tax avoidance schemes and ensure proper worker classification," said Kathy Petronchak, head of the IRS's small business/self-employed division.

    Employers generally must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. But they generally don't have to withhold or pay taxes on payments to independent contractors, the IRS says. If an employer incorrectly classifies an employee as an independent contractor, it can be held liable for employment taxes for that worker, plus a penalty, the IRS warns.

    "if you can control what will be done and how it will be done." That's the case "even when you give the employee freedom of action," the IRS says. "What matters is that you have the right to control the details of how the services are performed."

    The states that have joined so far are: Arizona, Arkansas, California, Colorado, Connecticut, Hawaii, Idaho, Kentucky, Louisiana, Maine, Massachusetts, Michigan, Minnesota, Nebraska, New Hampshire, New Jersey, New York, North Dakota, Ohio, Oklahoma, Rhode Island, South Carolina, South Dakota, Texas, Utah, Vermont, Virginia, Washington and Wisconsin.*
    I don't see how a contractor can maintain quality subcontracting everything and remain within the law, if you can control what will be done and how it will be done and you have the right to control the details of how the services are performed the workers are legally employees, the IRS has been promising to clamp down on illegal subcontracting in construction for years, it looks like they are now enlisting the states in their attempts.

    Can you honestly say that you could/would build a house without controlling what will be done and how it will be done, and you would be willing to give up the right to control the details of how the services are performed?


    * http://online.wsj.com/article/SB119561401063900183.html
    “It is not an endlessly expanding list of rights —the “right” to an education; the “right” to health care; the “right” to food and housing. That is not freedom. That is dependency. Those are not rights. Those are the rations of slavery – hay and a barn for human cattle.” - Alexis de Tocqueville

  6. #6
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    Default Re: Good news for Allan

    Dick,
    I think the definition they have is why its not enforced in the construction trades. As the GC how could I just sit back and let subs do whatever they want whenever they want. The role of a GC is to supervise and manage. I dictate to my subs exactly what I want and with a reasonable timeframe and with exact materials. I guess according to the IRS that would make them employee's but isn't there also something in there that says you have to employee them so many hours each year. My subs probably only spend a month or two out of there year working on my jobs. I wish they would crack down on this though. I'm trying to build a seperate division to my business with framing crews that I sub to other contractors. My largest competitor around here is running 13 crews for residential, he treats them all as subs paying one guy on each crew. Which I could be wrong but he's probably the only legal guy on each crew. Anyway he's running low wage illegal laborers and avoiding taxes and insurance on all of them. He's not doing it to profit much. He has cut the rate of framing labor so low in large neighborhoods around here that noone can compete with him legally. Its disgusting to me. If the guy was doing it to make huge profits and keeping the rates high for everyone else, I really wouldn't mind much, but when he cuts out most everyone else thats doing it honest, then it bothers me. I've reported him to every state agenct I could and they all emailed me back saying that there investigations division would try and look into it. They didn't seam to care at all.
    Rob
    O'Brien and Sons Construction
    Swansboro NC

  7. #7
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    Default Re: Good news for Allan

    Rob:

    That's the trouble with contractors who sub everything, the beat the subs down so low they can beat anybody in price and drive the prices down so low that a legitimate contractor can't compete and is driven out of business. The subs then cut corners to try to survive and we have the mess we have now.

    Interestingly enough, I take the opposite side of this argument went talking to government agencies and insurance companies, they see the problem as subcontracting anything, I take the position that the specialty trades should be subcontracted, that contractors are licensed based upon their knowledge of carpentry and their 4 years experience as journeymen carpenters, we know little about things like electrical and HVAC, we should subcontract it, but now we have the onerous insurance requirements like only allowing 25 to 40% of gross receipts subcontracted. In '69 during an IRS audit I actually had an agent tell me that the only reason contractors subcontracted anything was to evade taxes, I argued no, they subcontract things which they don't know how to do, those things should be subcontracted, he maintained that contractors would hire all of their own tradesmen rather than have multiple overhead layers if they legitimately wanted to save money and stay within the law, they only subcontract to save money, and they save money by evading taxes. That tells me that the IRS agents are trained that way.

    They've got to crack down on this, I've also been told that carpentry subcontractors pay little or no employment taxes, they somehow always seem to lose money and stay in business. In any game you play you've got to have rules, it's unfair for some ball players to take steroids or all ball players will have to take them to compete, you can't give one team's players 4 strikes before they're out, and the other side 3, some contractors can't subcontract work to people who don't pay taxes and insurance while competing with those trying to do the right thing.
    “It is not an endlessly expanding list of rights —the “right” to an education; the “right” to health care; the “right” to food and housing. That is not freedom. That is dependency. Those are not rights. Those are the rations of slavery – hay and a barn for human cattle.” - Alexis de Tocqueville

  8. #8
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    Jun 2004
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    Holly Springs, GA
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    Default Re: Good news for Allan

    Quote Originally Posted by Dick Seibert View Post
    Rob:

    That's the trouble with contractors who sub everything, the beat the subs down so low they can beat anybody in price and drive the prices down so low that a legitimate contractor can't compete and is driven out of business. The subs then cut corners to try to survive and we have the mess we have now.
    I doubt very highly that Allan- or any other quality builder, for that matter- is "beating his subs down so low" that they have to cut corners to survive, Dick.

  9. #9
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    Jan 2007
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    Louisville, KY
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    Default Re: Good news for Allan

    Tract home builders beat down the subs Dick. Not custom builders like Allan.

    "you get what you pay for" is understood by quality home builders.

    I think rob brought up a valid point that he doesn't keep a sub busy year round. Could you imagine having to manage every trade's schedule and make sure they have something to plumb everyday or a roof to lay out?

    I think that from the general contractor standpoint subs are fine. It starts to enter a gray area once it becomes trade specific.

  10. #10
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    Default Re: Good news for Allan

    Well Bob, he's stated many times that he has to supply all materials to his subcontractors, so they are just labor contractors; that's unheard of around here, so I have to assume if he has to supply them with their materials that they don't make enough to have the necessary working capital to purchase their own materials. The framing contractors around here (who I know) don't get paid anything until all materials are on site and they have to provide lien waivers proving they have paid for them. One of the old 20 condition Independent Contractor tests was: "#14. Whether the individual furnishes the necessary tools and materials", that's apparently been replaced with a new 3 condition test which gives the IRS more latitude, and whether the subcontracted work is necessary for the business survival is a consideration, since everything done is necessary for survival, I think the IRS is free to use it's judgment.
    The last factor in this group is the extent to which services performed by the worker are a key aspect of the regular business of the company. An employee is more likely to have a permanent relationship with a company than is an independent contactor, and an employee is more likely to provide services that are a key aspect of the business.
    Anyway, it appears that the IRS is finally getting serious about the matter, it's about time, I just wish they'd get rid of their community standards test in this day of the Internet, we now need uniform enforcement.
    “It is not an endlessly expanding list of rights —the “right” to an education; the “right” to health care; the “right” to food and housing. That is not freedom. That is dependency. Those are not rights. Those are the rations of slavery – hay and a barn for human cattle.” - Alexis de Tocqueville

  11. #11
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    Default Re: Good news for Allan

    9 out 10 jobs I furnish my own materials.

  12. #12
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    Jun 2004
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    Houston & Washington Texas
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    Default Re: Good news for Allan

    Quote Originally Posted by O'BrienConstruction View Post
    I want to be like Allan someday. Off topic, but he seams like the kind of builder I want to mature into.
    That’s a very nice thing to say Rob, thank you.

    Dick believes two things apply to all or most subcontractors:

    (1) They do inferior work.
    (2) They don’t pay their taxes.

    Although that might be true of some, you just can’t make generalized statements about all or even most subcontractors. There are some very well run and successful subcontractors who do very well in business and do excellent work.

    By the way, I don’t supply materials to all subs, in fact 98% supply their own. The only material I supply is framing and millwork.

  13. #13
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    Default Re: Good news for Allan

    The only material I supply is framing and millwork.
    I take that back. I also supply appliances, light fixtures, finish hardware, and plumbing fixtures.

  14. #14
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    Default Re: Good news for Allan

    Quote Originally Posted by Dick Seibert View Post
    I don't see how a contractor can maintain quality subcontracting everything and remain within the law, if you can control what will be done and how it will be done and you have the right to control the details of how the services are performed the workers are legally employees, the IRS has been promising to clamp down on illegal subcontracting in construction for years, it looks like they are now enlisting the states in their attempts.

    Can you honestly say that you could/would build a house without controlling what will be done and how it will be done, and you would be willing to give up the right to control the details of how the services are performed?
    Put this way, it's an interesting question. I'm not an attorney, so I don't understand the nuances of these standards when they're applied and at what point a subcontractor becomes an employee. Offhand, if I recall, there are other important standards that are considered, such as does the subcontractor have capital at risk, do they have employees and do they do they have other clients? How is our situation in residential construction any different than other businesses? Scopes of work for commercial construction can be exhaustive in their detail. I've been involved in supply chains for automotive companies and the government and the performance standards for suppliers can be extremely detailed.

    I'm not sure if someone else has already posted this, but here's a link to the IRS site and their publication that explains who is an employee and who is a contractor or subcontractor.

    http://www.irs.gov/publications/p15a/ar02.html#d0e373

    Some of the key factors for determining who is a subcontractor are they can make a profit or loss, they are paid by the job, they can make their own decisions on hiring their employees.

    Here's a link to the IRS brochure in pdf form:

    http://www.irs.gov/pub/irs-pdf/p15a.pdf
    Last edited by Alex_Saloutos; 11-24-2007 at 09:00 PM. Reason: Add link to IRS rules

  15. #15
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    Default Re: Good news for Allan

    Quote Originally Posted by Dick Seibert View Post
    That's the trouble with contractors who sub everything, the beat the subs down so low they can beat anybody in price and drive the prices down so low that a legitimate contractor can't compete and is driven out of business. The subs then cut corners to try to survive and we have the mess we have now.
    Dick,

    Are you saying this is the trouble with all contractors who sub everything?

    I'd agree some builders do buy on price only. Many homebuilders, including "tract" builders, buy total value and know it's important for their subs to be profitable for their long-term success. In the long run their costs of partnering with their trades in a win-win situation like this is actually more profitable for both and will deliver higher customer satisfaction.

    Alex

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