#43 [2026 | New Construction Investment] How I Chose a New Builder After My Previous One Went Bankrupt

Last time,

I wrote about
my personal experience with a builder going bankrupt
during construction.

After experiencing a builder's bankruptcy,
my approach to choosing a builder
changed significantly.

This time,
I would like to write about
what I have come to prioritize when choosing a new builder.

I intend to share that story.

My perspective has changed

In 2024, the year after the builder's bankruptcy,
I built four properties with a new builder.

All payments were made in a lump sum after completion.

The builder bankruptcy I wrote about previously
greatly changed my criteria
for evaluating builders.

Previously,

construction costs
and construction details

were the parts I prioritized.
Of course, these are still important.

However,
after experiencing a builder's bankruptcy,
I began to think
that this was not enough.

I started looking at
the financial health of the builders.

When I actually checked the financial statements
of the two companies I had recently dealt with (one of which went bankrupt during construction),
both were insolvent.

Their current assets were also not substantial.

Having experienced a builder's bankruptcy during construction
and then checking their financial statements,

I felt even more strongly
that I needed to find a new builder.

Therefore,
I began searching for a new builder
and requested quotes from about 10 companies.

I restarted the builder selection process,
including not just construction costs,
but also financial data and management status.

Construction costs alone are not enough to tell the whole story

I originally had
a relatively good eye
for construction companies.

My parents ran a construction firm.

Even with relatively low construction costs,
they secured reasonable profits
and managed the business soundly.

I thought that was the norm.
But the real world was different.

In my experience,
the lower the construction costs,
the less margin there was for profit or cash flow,
and it was not uncommon for companies to have a high risk of bankruptcy.

Of course, this does not mean
that all companies with low construction costs are like that.

Through corporate efforts,
some companies manage to keep construction costs down
while maintaining sound management.

You can tell
by looking at the estimates and invoices.

But you cannot see
their financial standing or management status from those.

Now that I have experienced a builder's bankruptcy,
I have started looking at those things.

I checked their financial documents.

Since experiencing a builder's bankruptcy,
I have started looking not only at the construction process
but also at the builder's finances and management status.

This is to determine whether the company is at risk of bankruptcy.

For this builder as well,
I first checked their financial documents.

They had significant net assets
and sufficient cash and deposits.

I judged that their financial situation and cash flow
were sound.

Of course, financial documents alone
do not tell you everything.

Even so, it is better to look
than not to look at all.

I now consider checking financial documents
to be essential.

This is because it is directly linked
to a builder going bankrupt during construction,
which I consider the greatest risk in new construction investment.

If a builder goes bankrupt during construction,
the client may suffer
a significant financial loss.

Furthermore, currently,
due to soaring construction costs (rising material prices, rising labor costs),
and factors like the naphtha shock,

the business environment surrounding builders
feels tougher than before
to me.

Precisely because of this situation,
I believe that checking financial documents
is more important than ever.

The first thing I check
is the financial documents.

・Net assets
・Cash and deposits
・Profits

Now that I have experienced a builder's bankruptcy,
beyond just construction costs,

I have also started checking
these aspects.

I also look at payment terms.

The second thing I check
is the payment terms.

・Ratio of start-of-construction, mid-construction, and completion payments
・Whether a lump-sum payment after completion is possible

For this builder, for all 4 buildings,
payment was a lump sum after completion.

Generally, companies with a higher percentage of payments
in the early stages, such as at the start of construction or mid-construction,
may have difficult cash flow.

On the other hand, companies with a higher percentage of payments
in the later stages, such as at completion,
may have more comfortable cash flow.

The most extreme example of this
is payment in a lump sum after completion.

Because they receive the full amount after the building is completed and handed over,
I think it would be difficult to accommodate
without having comfortable cash flow.

In my experience, having worked with 5 companies
and having received quotes from over 10 other companies,
this was the first time I encountered the condition of a lump-sum payment after completion.

I believe that the payment terms themselves
are one piece of evidence
for judging a builder's financial situation and management status.

I have started looking at builders
by including these conditions, not just construction costs.

There is an answer.

A builder with sound financial standing and management,
and one that also offers low construction costs.

Such builders
can potentially be found if you look for them.

Even outside of my investment area,
there is a possibility that a solution exists.

At the very least, I was able to find one.

I did not give up on construction costs.
Nor did I focus solely on financial soundness.

What I looked for was
a builder that could achieve
both reasonable construction costs and financial soundness.

Looking only at construction costs.
Looking only at financial statements.

Not just one or the other,
but looking at both.

That is
how I choose a builder now,
having experienced a builder's bankruptcy.

Low construction costs?
Sound management?

Why not try looking for a solution that balances both,
rather than choosing one or the other?

Next time,
why do prices and conditions change depending on the client
even with the same builder?

I plan to write about
the proposals and negotiations I actually carried out.