Should Commercial Contractors Consider Moving To Residential?

Subcontractors
July 20, 2021

With the recent boom in residential construction, many commercial contractors are making the move to add residential projects to their portfolios. Some say they are being asked by their commercial customers to take on residential work.

Brad Meltzer, newly appointed CEO at Plaza Construction, operates a New York City-based construction management firm that has mostly focused on commercial construction. He recently said their decision to focus on building high-end homes was due to requests from commercial clients. “The demand has been significant,” said Meltzer. “We’ve been receiving calls asking us to do it, as opposed to us chasing clients, which is the normal way business works. We decided, let’s redouble our efforts and focus on it.”

Based on the current economy, should commercial contractors consider adding a residential division?

Residential construction booms

One of the positive effects of the COVID-19 pandemic has been the boom in residential construction. Both residential remodels and new construction projects are up since the lockdowns started in March 2020.

The rise in projects is a direct result of lockdowns. Many homeowners, stuck at home looking at spaces that had been living in for years, decided to make a change. Other projects were started due to the need for home-office and schooling space, and the difficulty of finding privacy in many open floor plan homes. Some just needed more space, so they opted for an addition. Others, with no vacation plans in the near future, decided to spend money on sprucing up their homes.

In addition, many urban dwellers wanted to get away from the crowded cities and chose to move to the suburbs where they could have more space. This led to a housing shortage and the boom in new construction.

Should you take on residential projects?

While the basics of construction are the same whether the project is residential or commercial, there are some major differences. Contractors need to be prepared for a different marketplace for their services, as well as the technical requirements of residential construction.

To help contractors decide whether to make a move to residential work during the boom, we’ve listed some pros and cons around making the shift.

Pros

Less competition for bids

Most homeowners only get one or two bids for a project before making a decision. In the commercial world there can be multiple bidders and you never know how many and who they are.

Less oversight

Residential projects require a smaller team. There may be one designer, the general contractor, a few subcontractors, and the homeowner. Collaboration is easier with a smaller team.

High demand

With the boom in residential development, contractors will be in demand for both remodels and new construction projects. However materials are also in high demand at the moment and keeping that in mind is important.

Cons

More marketing

You’ve no doubt spent thousands of dollars promoting your company as a commercial contractor. To add on residential will definitely be an investment in your time and resources. At times the audiences for commercial and residential construction overlap, but for the most part, potential customers occupy different areas of the marketplace.

Smaller budgets

Most residential projects are going to be smaller than even the smallest commercial project. You’ll have to determine if you only want to focus on smaller repairs or if you’re willing to take on full remodels and new construction. Customers are usually more budget-conscious, so you may have to pinch pennies to meet their needs.

Code differences

The building codes for residential and commercial are substantially different. Not only are there different materials needed for residential projects, but styles and structural requirements can differ greatly. This can mean that some of your usual commercial subcontractors will not be able to perform residential work. Make sure you have a team ready to go before you start taking on projects.

To move or not to move

Making the switch from commercial to residential contracting may seem like a no-brainer at this point. Residential housing is booming and there’s no sign that it will slow down anytime soon, but before you make the switch, weigh your options, prepare a reliable team, and do your research to succeed.

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