January, 2005

A Land Office Business at Home Lumber

Indiana dealer provides lots for smaller builders

By John Brooks

It’s common knowledge that the toughest problem smaller builders face is finding lots to build on, especially if they compete with big builders. Even when they don’t, land can still be a problem, according to Joe Beckman, president of Crown Point, Ind.-based Home Lumber.

"The builders in our area are small builders who might do 10, 20, or 25 homes per year,” he explains. They have to have lots, but they’re not big enough to develop them themselves, and so a lot of the time, the lumberyard will do it.”

That’s not common, but Crown Point—roughly 15 miles due south of the tip of Lake Michigan as the crow flies—is different than many markets. It’s close enough to be a bedroom community of Chicago, but it’s also on the blue-collar side of the city, in the shadow of the steel plants in Gary and Hammond. The communities are tightly-knit, and home buying patterns aren’t like most suburbs.

Says Beckman, "We’ll get people moving out from the south Chicago area who have lived on the same block all their lives, and they’ll get everyone on the block to buy a lot from us so the whole block can move and all stay together. We’ve had that happen several times.”

Lumberyards generally avoid land development for a couple of reasons. First, you have to do it in a way that builders perceive as fair. Beckman gathers interested builders together for dinner, and deals out playing cards. The high card chooses the first lot, then each one chooses in turn until they reach the low card. That builder chooses two lots, and the group works its way back up to the high card.

"Can one person get a better lot?” asks Beckman. "Sure they can, but it’s random.” More important, land development is perceived as risky, which it can be. "You really have to find the right piece of land,” says Beckman, "and when you do, you can misjudge the market and develop high-end when everything is selling low-end.”

But if you get past those hurdles, the financial risks aren’t much different than carrying inventory and receivables. Says Beckman, "They put down $5,000 to $7,000 per lot, and it allows them to buy more lots because I hold it until they close on the home.” It’s a longer time frame, of course, but Beckman builds his carrying costs into the cost of the lot. "I risk my money, so there is certainly money in there for me.”

There are two things Beckman doesn’t do: First, he doesn’t mix land development finances with the lumberyard. "Our credit manager will demand money on the lumber whether I do or not on the lots,” he says.

Second, he doesn’t require builders who buy lots from him to buy their lumber from Home Lumber. It’s illegal in Indiana, he says, but it’s also bad business. "It’s just like the lumber business,” he says. "You find a good thing that customers like and you do it, and everybody is happy.”

Sales, he says, follow naturally. "We end up getting the lumber out of it, too.”

John Brooks is a freelance writer based in Bloomington, Ind.