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This story originally appeared on the BUILDER website.

When it comes to homeownership, there's entry-level, and there's entry-level.

Where many single-family for-sale home builders have begun to venture, ramp up, and offer new models--both detached and attached--qualifies as pushing into entry-level, but marginally fits the definition. That's because, while these new homes and communities stretch pricing low enough so that buyers have the ability to leverage FDA, VA, and USDA loans to finance their purchases, and there's plenty of demand at that level, they're still pricing too high to serve as many people's "starter home," a ticket out of renting into homeownership.

Of course, builders like LGI Homes, and D.R. Horton's Express line, Century Communities' fast-growing Wade Jurney Homes operations, and the newly acquired Clayton Homes family member, Arbor Homes of Indianapolis eat, sleep, and breathe that position, coaxing people out of rentals into new homeownership on a gentle, often improved monthly payments pathway.

The question for many builders--especially small-to-medium-sized home building firms, drawing on project financing and their own cash flow resources--is how they, too, might strategically and tactically pivot from higher-margin, higher-priced new home construction toward where the market seems to be growing faster each day, the newly re-energized "starter home" marketplace, in the $200,000 to $250,000 sweet zone of many markets around the United States.

For many, it's hard enough a challenge to build at that higher-end of what many markets call entry-level, simply because there's nothing lower priced to be had for a new home in the area, and because, right now, there's plenty of demand in that zone from mid-30-something couples who're ready for a next stage of family life.

It's an order-of-magnitude more difficult for builders to buy dirt, design, build, and market homes that literally pull people out of apartment rentals, a market many consider to be largely untapped despite the few aforementioned players who've made it their stock in trade. But it can be done.

Consider a case in point, Waukee, IA-based Destiny Homes, whose president is Dan Sparks, a principal at Destiny and its Des Moines-area custom home building sister company Genesis Homes.

Destiny--a kind of Des Moines-area phoenix whose talent and brain-trust rose out of the ashes of a former local power Regency Homes, which crashed and burned in the dark days of 2008--built and delivered a total of 120 homes in 2017. Destiny Homes has settled on more than double that amount in the same markets on the outskirts of Des Moines in the first six months of this year, and they're up 128% in an overall market that is down 14% in that same time period.


By figuring out how to make money selling homes at almost $100,000 below the average selling price for new homes in the Des Moines marketplace, and $80,000 lower than its own average selling prices two years ago.

If it sounds like an easy thing to do, it's not. And if it sounds like an intuitive thing to do, especially when things are going pretty well--from a price, pace, and profits standpoint--at the mid- to higher-end of the new home market, which they had been doing in Des Moines right up through the first part of 2017, forget about it. The level of effort it took to acquire lots for less, think about density differently, design the home for equal appeal yet less cost, get construction costs down, and reel in buyers on a whole new higher-volume plain

It started with an epiphany.

"I came into the office two years ago this past Spring and heard about a friend of mine who built a house in an outlying community of Des Moines, and listed it for $210,000," said Dick Moffitt, one of Destiny's executive partners. "He got five offers for that home the day he listed it for sale, and sold it for $10,000 more than the original asking price."

That single moment served as a wake-up call Moffitt, his partner, Destiny's president of sales and marketing Wade Hiner, and company president Sparks used 24 months ago to shift their business' focus. That shift--which meant doing things differently at every turn--from buying land, to design, to community planning, to construction, to sales.

"We looked at what we were doing and asked ourselves, what will it take for us to unlock the code to get to affordability?" said Moffitt.

That single question is one of the two most important challenges home builders of any size can address right now. And, for most, the answer is that the code includes several components, but they start with the land basis.

"The first place we worked to get to that level was the dirt, and we realized no developers were out there making lots available at the prices we needed, so we had to do a lot of the work on our own," says Moffitt. "If you don't have the lot at the price you need it to be, you can't build the house at the affordable level to get multiple bidders, fast sales, and better than your asking prices."

With so few options open to them on lot pricing, the Destiny took some chances and co-ventured with local partners, and after getting some land tied up, they concentrated on density and orientation, looking to cluster more homes on a grid, and building homes deeper on the lots, a practice they'd seen in some Australian suburban markets.

"We figured that if we took a 36' by 36" footprint and built that over and over, we could get our trades quickly up the learning curve and do them more and more profitably," Moffitt says. "We dove deep into it, and kept on learning, and slowly by slowly, we started to build some momentum. We brought our trades together, and asked them to work with us, and the fact is, even though they work for us at a lower rate than they might for others, they make more money working for us, and they always have a week or two ahead of them to plan where they're going to be."

It might seem to be a paradox for a trade crew to work for a lower rate on an hourly basis and still be more profitable on a job than they'd be able to do on another job. That's because there's never wasted trips out to the sites, never time lost in repairs of work done incorrectly, and never crossed signals about how many crew members go out to a site.

"I want this to be the best place for our trades to work, and want it to be the most profitable place they work," says Moffitt. "Those folks have to make a living, and we want to help them do that working on our sites."

For Destiny, the value-engineering process, balancing greater and greater cost efficiency with a design and livability level that could continue to excite prospective new homeowners, is an on-going process of learning and discovery.

"We started into it first by wanting to do it, and thinking we should be able to do it, but not having a clue as to how we would," says Moffitt. "So, we figure out one area--fewer microlam beams, or girder trusses--and make that work in the elevation design, and then go from there. You keep on simplifying, and also picking up time as you go up the learning curve and start working so that a trim carpenter who took 4 days to do the job can learn to do that same job in 2 days. That's how you learn to bring the price down."

Once Destiny had been able to bring down the cost of its entry-level offerings from the high $200,000s to the $200,000 to $225,000, it found that it was in a whole new ballgame as far as sales.

"It's less like selling, more like an education process," says Destiny Homes marketing and sales chief Wade Hiner. "People start from an experience of having been outbid again and again and again on resales, and they think they're never going to actually get the opportunity to land a home with their bid, and then many of them think you need 20% down to get a mortgage. Our sales process focuses on educating our buyers on the affordability of living in one of our homes, especially compared with what many of them pay to rent."

Yes, local regulation, Department(s) of Natural Resources, and other entitlement, impact, and development costs are a barrier to pricing, but the Destiny Homes team has found that municipalities in the Des Moines area are now courting them for their ideas on how to introduce more affordable new home communities.

"They tell us, 'we know what you're doing, and we want what you're doing here,'" says Moffitt. "The reason is that if a town doesn't offer homes priced at this accessible range for people, chances are those people are going to be looking to move out and go somewhere else."

Now, in two years' time, Destiny has migrated average selling prices down by almost 30% of what they'd been averaging in 2016, and they're not looking back.

"The whole daisy chain of changes started for us 24 months ago, and we're thankful we got into the process of learning what it would take to offer the market affordable-level new homes," says Moffitt. "Now, the market's slowing for our higher-end offerings and I don't know why that is, but we're just fortunate we're making money and increasing our volume on our affordable models."