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Opportunities Are Plentiful In Remodeling and Construction
by Michael J. McDermott

From the time the tech bubble burst and right through the difficult times that followed, there was one segment of the economy that never faltered: housing. As a result, remodeling and construction continued to be fertile ground for new business opportunities, a trend that continues today with no end in sight.

Low interest rates that have made home ownership affordable for the largest percentage of Americans at any time in the nation's history-and prompted millions more existing home owners to refinance their mortgages-are the first factor cited in any discussion of the construction and remodeling sector's continued vibrancy, and rightly so.

However, interest rates are not the only engine driving this market, and that's good news for entrepreneurs thinking of starting a business in construction or remodeling. Even with the gradual rise in rates currently underway, analysts say the diversity and multiplicity of factors fueling the trend promise to keep this a strong growth sector of the economy for at least the foreseeable future, and probably beyond.

Last year, Cartwright and Daughters Builders, a 30-year-old construction and remodeling firm in Ithaca, N.Y., booked almost $7 million in revenue from remodeling projects. To handle that volume, it parceled out work to more than 55 subcontractors, generally much smaller businesses specializing in a number of areas, ranging from concrete and cement work to roof gutter installation to kitchen cabinet refacing to bathtub reglazing-and much, much more. For most first-time business owners, it is in those specialty areas that the construction and remodeling industry's most promising opportunities lie.

Low interest rates have played a key role in the remodeling industry's vibrancy.

Siding and window replacement, kitchen and bathroom remodels and room additions generate the lion's share of sales in the remodeling industry, according to the 2004 Homeowner Remodeling Survey conducted for the National Association of the Remodeling Industry (NARI). Americans spent about $236 billion on remodeling projects last year, estimates the Harvard University Joint Center for Housing Studies (JCHS).

"Homeowners continue to reinvest in their homes," says Nicolas Retsinas, director of Harvard's JCHS. The common perception is that owners of older homes are the primary consumers of remodeling services, but data from the U.S. Census Bureau shows that homes built since 1990 account for as much spending in this segment as those built prior to that year. Spending by both groups of home owners has been fueled by low mortgage interest rates prompting them to tap the equity in their homes and free up cash to use for remodeling and construction projects, Retsinas says.

Other factors contributing to the bull market in construction and remodeling include a documented preference among baby boomers to remain in their current homes as they reach retirement age. A recent survey by the American Society of Interior Designers (ASID) found that more than 75 percent of members of the baby boom generation express this preference. That should drive future demand for remodeling and construction projects targeting safety, accessibility and other age-related issues which the industry describes, collectively, as "visit-ability."

As the baby boomers have repeatedly demonstrated through their embracement of wrinkle-fighting creams and lotions, cosmetic surgery and other "age-defying" products and services, they tend not to acknowledge the reality of their own aging, says Charlie Schewe, a marketing consultant specializing in generational issues. However, they do recognize the need to make their homes more accessible, flexible, convenient and comfortable for parents and other elderly relatives-hence, visit- ability.

Current trends suggest that as many as one in four baby boomers will be significantly involved in providing care to an elderly parent or relative during their own pre-retirement and/or retirement years. In cases where some or all of that care giving will take place in the boomer's home, the visit-ability issue looms even larger.

This issue has the potential to be one of the most important emerging trends in the remodeling and construction industry. The Universal Design Alliance, a not-for-profit advocacy group based in Suwanee, Ga., estimates that remodeling and construction costs to achieve needed levels of visit-ability can amount to as much as 25 percent of a home's existing value. Incorporating the same design concepts and the products needed to achieve them into new-home design and construction generally costs much less, about 2 percent of the home's value on average.

Americans spent about $236 billion on home remodeling projects in 2004.

Adding credence to the potential importance of visit-ability as a market driver for construction and remodeling businesses is the NARI study mentioned earlier. Sixty-two percent of respondents in that survey said their remodeling projects were spurred by the need to address lifestyle changes and family needs. Although the survey did not cover the nature of those needs, a spokeswoman for AARP, a nonprofit organization that advocates for seniors, says there is little doubt age-related issues figured prominently in the survey's responses.

That represents something of a change from the traditional model of the remodeling market, an economist with NARI points out. "Historically, things like increasing a home's market value and adding an office for a work-at-home situation have ranked higher as motivations for remodeling projects," he says. "Changing lifestyles and family needs beat out both of them in the most recent poll. Clearly, this is an issue that looks to increase in impact and importance in the coming years."

A corollary of the red-hot housing market has been a concomitant increase in land values. In some parts of the country, exorbitant land costs have people cramming ever-larger houses onto smaller and smaller lots-a phenomenon sometimes referred to as the "McMansion" trend.

Such an aggressive approach to land use has prompted some legislative and regulatory bodies to enact more restrictive zoning rules, limiting the options for some expansion-minded home owners. Where they once might have eyed a horizontal growth plan-such as the addition of a new wing or room-they now are looking either up to attics, or down to basements to satisfy the yen for more living space.

That trend is creating opportunities for aspiring business owners in the concrete and cement segment of the construction and remodeling industry. Consumption of Portland cement is increasing at a rate of two to three percent a year, according to Ed Sullivan, chief economist for the Portland Cement Association, and that trend is projected to last at least through 2008. Concrete and cement are used in both new construction and remodeling projects, and basement remodels are particularly likely to involve some kind of masonry work.

In the new construction sector of the industry, almost one of every five new single-family homes built in the U.S. uses cement stucco siding, according to the National Association of Homebuilders (NAHB). Another 13 percent use fiber cement siding, and 2 percent use manufactured stone, which is generally made from cement.

Poured concrete driveways grace the garage fronts of 60 percent of new homes. All told, about 19 tons of concrete and cement is used in the construction of the average new home in the U.S. Applications include basements, crawl spaces, foundation walls, floors, footings, slabs, above-grade walls, fireplaces, hearths, chimneys, landscaping, paving and decorative uses.

Construction of the average new home requires about 19 tones of cement and concrete.

Decorative and other nontraditional applications now account for some of the most innovative uses and best business opportunities in the cement and concrete industry. The new technologies available today allow concrete to be shaped into virtually any form and to sport a variety of finishes, resembling everything from polished marble to antique brass.

Reasonable financial requirements make entry into this segment of the construction and remodeling industry viable for many would-be entrepreneurs. The upfront capital needed to purchase a business opportunity in the cement and concrete industry can be as little as $5,000. A variety of business types and formats are available, such as dealerships, distributorships, manufacturing businesses, licensing deals and franchises. Opportunities also abound in such traditional segments of the industry as crack repair, concrete resurfacing and waterproofing.

Baby boomers will continue to be major consumers of construction and remodeling services. They accounted for 56 percent of all remodeling expenditures in 2001, and 72 percent are now or soon will be "empty-nesters," according to NARI. A significant portion of them-at least 15 percent, NARI estimates-plan to remodel their homes, creating "significant business opportunities for remodeling professionals," the group predicts.

Rising demand for home organization products and services is a positive trend.

Cocooning (a term coined to describe people's tendency to invest in making their homes more welcoming, comforting and entertaining, especially during periods of widespread societal angst) was first identified as an important driver of the remodeling and construction market more than a decade ago. After waning somewhat in the late 1990s, cocooning has remerged as significant market-driving trend in the wake of the 9/11 terrorist attacks on the U.S.

Money that might have been spent on expensive overseas vacations and other forms of conspicuous consumption is now likely to be earmarked for home improvement projects instead. "During times of stress and trouble, people turn toward the sanctuary of hearth, home and family," says Morton Gottlieb, a psycho-social anthropologist.

"It's quite a natural reaction for people to seek the safety and security of home, where they feel most connected to the things that are important to them, during such periods. When it comes to feathering their nests, U.S. consumers have very strong motivations and the financial resources to follow through on them," he says.

A fairly recent but fast-growing trend in the construction and remodeling industry is consumer demand for home organization products and services. Closets and garages used to qualify as little more than afterthoughts in most remodeling and construction projects, but a booming cottage industry has grown up in cabinets, shelves, racks, hooks and design plans to keep those two areas organized as neat as a pin.

While closet systems were once considered a luxury item suitable mainly for the very high end market, organizing aids are now considered an essential element in a growing percentage of expansion and remodeling projects, says Mike Carson, president of the National Closet Group and chief executive officer of Closet Works.

Carson notes that many homeowners are now including dressing room areas in lieu of closets in their remodeling project design plans. Typical dressing room accoutrements include drawers, benches, dressing tables, mirrors and even televisions.

A basic organizing makeover can cost as little as $500 for a conventional bedroom closet, but the ranks of people willing to spend $10,000, $15,000 or even $20,000 on a fully-equipped dressing room area are on the rise, Carson says.

The home organization market even has its own trade magazine today. Helen Kuhl, editor-in-chief of Closets, pegs current sales of home organization products and services at about $2 billion a year. A recent survey of suppliers to the home organization industry by the magazine found that 90 percent of them saw business increase in 2004, and the same percentage expect sales gains in 2005, she says.

The remodeling and construction industry has undergone some significant changes in recent years, especially in the residential market. A notable one is the increased emphasis on service. It's a trend that is creating many new business opportunities, some of which may offer attractive entry points to the industry to novice remodelers.

Once spurned by most remodelers, handyman businesses are becoming more popular.

"Many niches exist that offer ample opportunity for remodelers just entering the market," notes Marty Collingswood, a consultant specializing in remodeling and construction management techniques. He cites the handyman niche as a prime example.

"Fifteen years ago, there was very little interest in the handyman concept evident among anyone in the remodeling industry," Collingswood says. But as houses have become more expensive and difficult to maintain, homeowners have grown increasingly unwilling or unable to perform many required maintenance and repair procedures themselves. They are willing to pay someone else to do the work for them, but they demand a level of professionalism much higher than that traditionally found in the handyman marketplace.