The New Century Homes Market Niche
New Century Homes, Inc. is a Utah corporation that was established to function in the field of residential and commercial property development and construction. New Century plans to establish a Component Wall Factory where it will produce Component Wall Sections for its own developments, as well as design, develop, and market our Component Wall Kits throughout the world.
New Century Homes has the management skills, experience, expertise, ability, and knowledge to effectively create affordable homes. New Century can and will accomplish the goals set forth in this Business Plan.
The New Century staff is comprised of individuals who have extensive experience in all phases of real estate development, construction, and marketing.
THE NEW CENTURY HOMES MARKET NICHE
For many years high inflation and high interest rates have combined to keep many people from buying a home of their own. Because of the current high cost of living, many people just cannot save enough money for a down payment, nor, can they qualify for a home loan. The truth of this statement is more than adequately attested by the April 28, 1998 Housing and Urban Development (HUD) Report ot Congress. This report shows that, contrary to the boom that appears to be occurring in the housing market there is a real crisis in the affordable housing marketplace.
"The report presents clear and compelling evidence of deep and persistent housing problems for working families and other Americans with the lowest incomes."
Housing and Urban Development Secretary Andrew Cuomo said: "The story of housing in the 1990's is a story of prosperity without progress, the strong economy that has brought prosperity to millions of Americans has not reduced the affordable housing crisis for millions of others."
It has become virtually impossible for many potential home buyers to plan for, or even think about, the purchase of a home. For some, the great American Dream is dead.
Even though interest rates are lower now than they have been for several years, low wages and the lack of an adequate down payment still precludes many families from buying a home.
Over the years, the inability of a sizable number of families to afford their own homes has created a lengthy slump in new home construction. Even though the published figures indicate a growth in the number of new home starts each year, the actual number that should have been started, since the extremely high interest rates were in effect, is much greater than what has been built, and fails to meet the needs of everyone who wants to buy.
The high interest rates, the inability to assemble a down payment, and the inability to qualify for a loan have all brought about this large shortage in affordable housing. While it is true, that some sectors of the country have recently experienced building "booms," the housing shortage is far from alleviated.
New Century Homes is convinced that a creative low monthly mortgage program, combined with a creative low down payment program, will address a segment of the market not currently being addressed by the construction industry, by bankers, by lenders, or by the various government agencies involved in the housing market.
The officers of New Century Homes conducted an extensive market survey designed to reach potential home buyers. In meeting with the potential home buyers and discussing their purchase of a home, the New Century staff discovered some very interesting facts:
1. Very few people are interested in trying to save for the future. They enjoy today because it is here, tomorrow may never come. This has a direct negative impact on their ability and desire to save for a down payment on a home.
2. Most people still want a home of their own, but they have been so conditioned by the high cost of real estate, bad economic reports, threats of war and civil unrest, that they have given up on the idea of ever having a home of their own.
3. Many young people want, and expect, all of the comforts and luxuries that their parents worked many years for - RIGHT NOW. They are in fact overspending their income in order to maintain the standard of living they had while living at home. This attitude virtually eliminates any chance of ever assembling a down payment.
In creating a program to meet the needs of those individuals who identified themselves as potential home buyers NEW CENTURY HAS BEEN ABLE TO CREATE A PROGRAM THAT CAN ADDRESS THE NEEDS OF ALMOST ALL HOME BUYERS.
New Century is fully aware that we cannot solve the housing problem by ourselves, but, we also understand that we are responsible to do everything in our power and ability to serve our fellow man.
Our Mission, "making homes available to everyone," hinges on our ability to meet and solve the economic problems of today's home buyers in such a way as to create an environment where home ownership is once again the expected standard, and home ownership is within the financial capability of a majority of the population.
To accomplish our task we must meet the following challenges:
1. Produce a sufficient quantity of quality homes such that the price of each home is greatly reduced through efficient manufacturing techniques, and through buying component parts of the home in volume.
2. Offer a greatly reduced Down Payment Program, so that home buyers can save the necessary money to enable them to qualify for the purchase a home.
3. Offer a greatly reduced Monthly Payment Program, so that the monthly payments are well within the buyer's budget.
4. Create an atmosphere where home ownership is seen as a simple thing, something everyone does. Something that is not beyond anyone's means, but, with a little effort, the natural thing to do.
5. Establish a program where the buyer's fears, objections and problems are reduced or eliminated.
We will return and address these five statements in greater detail, after we have established some basic concepts concerning manufactures homes. With the basic concepts in mind the discussion of the above statements will make more sense.
For New Century to manufacture homes in a factory environment requires that the factory operate at, or near, full capacity. Excess capacity is expensive and unaffordable.
The officers of New Century have visited and toured many modular home plants over the years. Most of the plants merely moved the construction process inside. No effort was made to automate the construction process in any way.
New Century intends to establish an automated factory that will draw extensively from the best manufacturing techniques and processes. New Century will automate its factory so that we will have the maximum effective optimization of the home manufacturing process.
In order for a manufacturing facility to be profitable it must operate at a production level that utilizes the equipment, personnel, and facilities of the factory in such a manner that the operational costs are minimized while the products are produced in such a manner and at such a rate as to maximize the profit structure of the corporation. We, at New Century, feel that we will be able to keep the factory running at peak performance due to the large sales volume that will be generated.
By concentrating on residential construction, and by owning many of the suppliers of the various parts of a home, New Century will be able to create significant savings in the construction of the homes.
At full capacity, our modular home plant is designed to produce 8 homes per day, with an average size of 1,500 square feet. This is 72,000 board feet of lumber, 2,000 sheets of plywood, over 750 pieces of sheet rock, and nearly 1,000 pounds of nails each day. It will probably take some time to reach full capacity.
New Century intends to establish a fiberglass operation that will produce standard fiberglass products, such as tubs, sinks, shower enclosures, hot tubs, and custom trim items for the homes. New Century will also manufacture the roof trusses, the counter tops, and the cabinets.
By producing many of the basic components of a home, New Century can control its costs and lower the ultimate cost of a new home. Each of the wholly owned manufacturing operations will charge New Century its exact cost to produce the materials.
All profits, from each of the individual cost centers, will be passed forward to the final construction cost of the home. This allows New Century to construct homes for less than most other builders and gives New Century the various options for creative financing to meet our goal of an affordable home.
New Century is looking at new and novel construction materials and techniques to see if they can be adapted to the sophisticated assembly line manufacturing process planned by New Century.
The fact that New Century Homes will build the new home for less than other builders does not mean that New Century will sell the home at a lower price. If New Century offered the homes at a price proportionate to the profit margin in the other homes on the market there would be a large number of orders that would effectively swamp the factory and create problems for New Century and the Buyers.
New Century will make the home more available by reducing the effective monthly payment through creative financing techniques.
Unlike many builders, New Century is willing to collect its profits over a term of 30 years. Charging the home buyer full price for the new home will create a major cash flow for New Century Homes which can then be used to fund the creative financing program. Through an effective creative financing program a much lower effective interest rate can be established, thereby saving the buyer thousands of dollars over the term of the loan.
Implementation of new, creative ideas, is what will keep New Century Homes at the forefront of the manufactured home industry. We will not fall into the trap which plagues America's industries today by complacently sitting on our laurels.
CHANGE is the necessary activity of any business today. As one Salt Lake City business put it:
"You can't do today's work with yesterdays equipment,
if you expect to be in business tomorrow."
Ongoing change, which upgrades operations, and/or products, will be a major concern. New Century is aware of the fact that we must stay abreast of the changes, rather than resisting change until it costs too much to change.
We are fully aware of the fact that the companies who manufactured radio tubes all failed to recognize the importance of the transistor and none of them are leaders in the manufacture of electronic chips.
Though many management positions have not yet been filled, the nucleus of a dynamic, creative management team is in place. They, individually, and as a group, recognize and relish the challenge stated above. Each one is prepared to meet that challenge head-on.
New Century's officers, directors and employees have a broad background, they have a varied experience, and diverse interests. The melding of these interests and experience into a common direction generates the creative atmosphere which will make New Century Homes successful.
Realizing that individual power or glory does not always serve the best interests of the company, New Century's Management Team will always recognize that what is best for the company is ultimately best for the individuals.
As the ongoing effort to fill the management positions proceeds, this conceptual criteria that will be used in selecting candidates to fill the jobs. New Century Homes is well aware that our people are our public image.
Now that the basic concepts of modular home construction have been covered it is time to return or our basic precepts.
1. Produce a sufficient quantity of quality homes such that the price of each home is greatly reduced through efficient manufacturing techniques, and through buying component parts of the home in volume.
A properly established modular home factory is capable of producing far more homes that could ever been built in the field over the same period of time. This is true of a either a modular, mobile or component wall factory. Although the package kits can be produced quickly, there is no control by the factory over the steps needed to complete the home, therefore they are not included in this discussion.
The ability to produce a large quantity of homes is not contested. The thing that must be considered is the quality of those homes. Generally speaking, homes produced in a factory environment will be subject to greater quality control measures than stick-built homes. A properly conducted quality control program will produce high quality if, and only if, quality materials are used and the design of the home has been properly executed.
New Century will take every step necessary to procure high quality materials and to use them under strict quality control measures to produce homes that have been professionally designed and engineered by licensed and registered individuals.
2. Offer a greatly reduced Down Payment Program, so that home buyers can save the necessary money to enable them to qualify for the purchase a home.
In order to qualify for an FHA or VA mortgage the buyer must demonstrate that he has paid at least 3% of the total purchase price as a down payment. New Century will require a 3% down payment so that out buyers will have all financing options open to them.
New Century, in order to assist home buyers achieve their dream offers two different programs.
a. A "Work for Your Down Payment" program, where buyers who have the ability, and the time, to enable them to complete various phases of their home construction will be granted credit for those phases where they perform the work in a manner such that the local inspector will pass their work, and
b. New Century also offers a "Trade in Your Old Home" program. Buyers who have an existing home may exchange the equity in their old home for credit toward the purchase price of their new home.
3. Offer a greatly reduced Monthly Payment Program, so that the monthly payments are well within the buyer's budget.
As we stated earlier, FHA and VA have lowered the required down payment to 3%. While this alleviates the problem of assembling a large down payment it creates another problem. Since the down payment is smaller, the loan is larger. This makes it much harder to qualify for a loan. Since the loan is larger, the monthly payments are also increased.
Some states have developed programs where they step in and help with the mortgage interest rates. They grant loans with lower interest rates than the prevailing rate. Adjusting the interest rate down will lower the monthly payments.
New Century has developed a proprietary program. The program requires the buyer to pay a 3% down payment, just like FHA and VA.
Traditionally, a new home buyer will pay the builder between 10% and 20% of the purchase price of the new home as a down payment. This money is usually paid in cash, and always applies toward the ultimate purchase of the new home.
The balance of the purchase price is then paid to the builder from the proceeds of a loan from a bank or other traditional mortgage lender. In today's market, the home buyers are having trouble assembling their down payment and qualifying for the loan.
We call our program the "Low Interest Mortgage Program," because it creates an effective interest rate that is much lower than anything available in the market.
4. Create an atmosphere where home ownership is seen as a simple thing, something everyone does. Something that is not beyond anyone's means, but, with a little effort, the natural thing to do.
By establishing an affordable home purchase program, New Century will have created an atmosphere where home ownership is easier. It will eventually become something that everyone does. A home will not be beyond the means of anyone. With a little effort, buying a home will be the natural thing to do. Just as it was 40 years ago.
5. Establish a program where the buyer's fears, objections and problems are reduced or eliminated.
As any salesman will tell you, "You must conquer the buyer's fears before he will buy." Only when the buyer feels comfortable with the purchase will he commit himself to thepurchase of new home. Fears are eliminated by bringing the price down to the same as the cost of rent. Objections are removed by showing the buyer quality of the home and the benefits of home ownership, i.e., the tax breaks, and the appreciated value of the property. The problems are covered by the New Century guarantee.
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