Building a spec house

13 Replies

@Todd Belanger - I am not from Colorado so I am not sure what R1 lots are zoned for or how much they are worth so we can't really help analyze your deal.  However, I imagine the development process is similar to building a new construction house where we are in Illinois.  We are currently building a spec home in Chicago's Bucktown neighborhood.

Here is roughly the process we went / are going through:

0. Analyze the deal (Developer/GC/Lender/Architect) - Ensure that it is zoned for what you want to build or else intent on going through a zoning change or variance

1.  Buy land (Developer/Lender/Realtor/Attorney)

2. Hire architect & designer to develop plans (Developer)

3. Hire GC for construction cost (Developer)

4. Complete drawings (Architect/GC/Designer)

5. Pull permits (Developer/GC/Architect)

6. Secure financing (Developer/Lender)

7. Build house (Developer/GC/Lender) - This is the step we are currently in

8. Sell house (Realtor/Attorney/Developer/GC/Lender)

I obviously missed tons of details and things are a little different everywhere but that at least gives you a rough idea of the process we are in.  I personally wouldn't rush to buy any land without a solid team put together because that's the most important part.

I work as a project manager for a home builder. I will say, after all the time you put in to spec the home, and all the fees, permits, selling costs, etc, you'd be better off just selling that parcel of land if you're thinking of short term gain. Much simpler. Cleaner. And you'll probably net about the same amount either way. Just my observation.

The other option would be to build a multifamily on it, and depending on the cost/ROI, that's a good option.

@Todd Belanger

I am just finishing my first spec house. I have it listed but it is not sold yet. I did performed the largest portion of labor along with the help of subs.

Be vert careful that you dont overbuild and keep finishes so that they appeal to the largest portion of buyers.

My profit wont be what I hoped for but I did learn an enormous amount during this process and feel confident I would be able to make better choices and decisions the next time.

@Todd Belanger

@ryansmith is right. The only good reason to build a spec house is to help sell the lot. The realtor’s commission becomes a huge detriment to the spec house bottom line and will chew up basically all of the additional profit you stand to make. List the lots for a few months before starting the build process.

If you do want to go through with it, first find a lender who will do construction loans on investment properties. They’re few in number, but they’re out there. Ask them for good contractors they’ve worked with before on construction loans. You don’t want to get wrapped up with a builder who can’t afford to float the costs from draw to draw.

Inventory is very low and Specs are big business in Denver right now. They sell like hot cakes. 6/7 of my recent projects are specs. Last couple sold this year were very profitable and much higher than the value of the land cost. On an approximate 20% investment,  Investors have doubled and tripled their dollars. Neighborhood is critical. 

I'm doing a large pop top in the highlands, it's similar to a spec I'd say. Do you have the land uc? I've got a good architect and have all the pieces of a team I could share with you.