Building on Speculation

[Rich]

Who has built and sold a spec house?
When I started my company I vowed not to company finance any spec houses unless I had twice the amount of the construction costs in the bank. Risk is just too high IMO.
The other day a client of mine suggested if I had any slow time he would like to finance a spec house that I could build on one of his lots. I haven't really had a chance to run through the options - but it seems like a heck of a deal. No financial risk - well less risk than if I financed it anyway.
I'm thinking if I get the plans together and possibly a 3d image of a home that I could get some marketing out before I actually build the home.. as I don't think I'll have any down time until Sept/Oct. This could work out very well by keeping my crews busy through the winter - or a good portion of it.
Any thoughts.. pitfalls.. etc?

[Dragon]

The only pitfall to a spec is that it might take longer to sell than you anticipated.

The main perk to a spec is that you aren't trying to please someone else and the job will go smoother. I know quite a few builders who refuse to do custom. One even goes so far as to refuse to sell a home before it is completely finished.

[Rich]

Yeah - the selling part and paying interest on the construction loan/mortgage isn't something I'm interested in at all.. with someone else financing it - that will take the pressure off my finances but my end up hurting us down the road when it does sell.

[Cole]

Originally Posted by Dragon

The main perk to a spec is that you aren't trying to please someone else and the job will go smoother.

That's the best part about spec homes.

[grumpy]

Really Rich? I'm thinking that building a spec house is the only way to get into the house building business... Otherwise when someone asks if you have built any houses before, the answer has to be no.

It doesn't seem like you will be the one speculating, your customer will. What's your risk unless you are paid upon sale of the house? if he's financing it, I say go for it.

I worked for a builder who did what we called semi cutom. basically after the drywall went up the house hit the market. The walls would be primed and the cabinets and flooring installed but no finishes or fixtures or counter tops. That would be up to the realtor and customer to figure out. obviously an allowance was worked into the deal. Then they would close on the house sale and the builder would finish it up. of all, but one, of the houses I did for this guy, They were all sold before completed.

[Rich]

funny you mention that (leaving the interior unfinished). In speaking with this guy over the weekend - we came up with the same idea. Getting the exterior shell completed and then leaving a blank hole inside - to be filled in with whatever plan (several to choose from) they liked.
I stepped into the home building industry with no houses under my belt (at least not for the last 5 or 6 years when I was in Denver). My only problem with spec houses is the financial outlay of funds with no guarantee it will sell. At least initially that was my fear. But seeing the amount of business around this small area of the country - lots are going up for sale and selling in weeks. Some builders are getting homes framed (no finishes at all) and having the home sold. Never thought I would see that around here - but it's here.

[grumpy]

You do have a risk in spec houses, that's for sure. I bid a job for a painter who turned builder. I was $300 higher than the next lower bidder on a roughtly $3000-4000 (I forget specifics now, this was a year or so ago) roof job... but I was bidding all copper flashing, including copper standing seam on a front bay window. Obviously after pricing out copper you can see this guy was going to get much much more for his money.

Anyways he wanted 1 mil plus for the house... and the house sat on the market, and sat and sat. Finally he moved into it, and I smirk at him every time I pass by because I know if he had paid that extra $300 to hire me and install copper he'd have had a much much better chance at his asking price. Simply put it did not look like a million dollar house with the aluminum flashings at the front... Curb appeal is a must.

[Cole]

Originally Posted by grumpy

Curb appeal is a must.

I agree 100%!!!

[Rob]

First post, Hello and great site.
I have been kicking around the idea of a spec home/housing development for alittle while now.
In my area East Central IL our power provider Ameron has increased their prices for the first time in 10 plus years, resulting in nearly doubling electric prices,ouch!!
Anyway my idea was purchasing 48 acres of scrub pasture, subdividing to 17-20 lots and building energy effecient homes in the 80-100 range. Trying to keep costs down for both my self and the buyer.
By energy effecient I am thinking of slab foundation with radiant heat and poured walls, drywalled ceilings and metal roofing.
Interior concrete finish will be stain and etch, extrior concrete finish will be sprayed plaster finish.
I am looking to provide new effecient and long lasting homes to those that might not be able to afforde a new higher end home.
Ok now lets hear it, I know the combined experience of this forum should be able to help me iron this out to a smooth operation, thanks in advance for your information and help. Agian a great site I only wish it had been around in the mid 90's, I might have saved some money,LOL.