By Larissa Bauer
We talk to builders every day. And one thing we’re hearing more and more is this:
“We want to build for first-time buyers—but the math just doesn’t work.”
It’s a real issue. Starter homes, once the foundation of any healthy housing market, are becoming unicorns—especially in high-cost markets. And while headlines tend to focus on interest rates and affordability for buyers, we’re not talking enough about what’s happening on the builder’s side.
Let’s break it down.
For most builders, the challenge isn’t demand—it’s margins. Between land prices, construction costs, permit delays, and rising labor wages, it’s tough to justify a $400K sales price when it costs nearly that much to build.
Luxury homes might sell slower, but the profit spread is there. That’s why we’re seeing a shift toward higher-end product—because the economics are easier.
But here’s the thing: the demand for starter homes isn’t going away. If anything, it’s growing. Young couples, single parents, and first-time buyers want homes they can actually afford. So the question becomes…
We’ve seen some really creative approaches from borrowers lately—strategies that make the numbers pencil without inflating the final sales price.
1. JV with the Landowner
One of the most effective ways we’ve seen to reduce costs is to partner with the landowner. Instead of purchasing the land outright, the builder and landowner form a joint venture. The land is contributed as equity, which allows the deal to be structured as a refinance, not an acquisition.
From there, the loan can cover most—or all—of the vertical construction costs. By removing the land acquisition from the capital stack, the overall project cost drops, and the homes can be priced more affordably.
2. Simplified Product Design
We’re seeing some borrowers simplify their floorplans, use repeatable elevations, and reduce material variety. These choices don’t just save money—they save time. And time saved is money saved.
3. Municipal Incentives
In some markets, cities and counties are offering impact fee reductions or density bonuses for builders who commit to affordable housing price points. These programs often fly under the radar—but can make a major difference on feasibility.
We’re not saying it’s easy. But it’s possible. With the right capital structure and some creativity, builders can serve this underserved buyer segment—and still make strong returns.
At Flipside, we’re here to help you think through the capital side of it all. Whether it’s JV structuring, cash-out refinances, or helping you figure out how to maximize imputed land value—we’ll work with you to make it happen.
Let’s build homes people can actually buy. The next generation is counting on us.
Let’s talk. You can reach me at lbauer@flipsideloans.com to learn more.
