Is it worth building a spec home in a downward market?

Question

Some friends have conviced me to look at getting into building homes and selling them once complete.  Would doing so be a bad idea, considering the timing of the housing market?

Even the NY Times has an article today showing the market has begun to turn around.  Does this mean builders will not be able to sell, or am I overreacting?  There's always going to be a need for homes, right?

N/A N/A · Answer

What we are doing out here in california is the following Model:

1) purchase a Home either Trustee Sale or REO
     A)  2 Beds 1 Bath
     B)  750 -1100 Sq Ft Living Space
     C)  7000 Minimum Lot Size

2)  I have a contractor that will add 2 Beds and 1 bath and 1 Patio
for the low--Low--Price of 50K (In California that's cheap).

3)  Sell it Just under Market Value for a house that size and if they use my mortgage guy I will Pay ALL Closing Costs.

EX:

Property Purchased at Trustee Sale = 300,000
Add 2 beds 1 bath 1 Patio + Permits =  55,000
Sell for Market Value                         525,000
Pay Closing Costs @ 5%                      26,250

Make Profit of:                                  143,750

Not bad for a 5 months Work.

Joseph

Mark Sanders · Answer

I would know your market. Be selective and demanding. You cant just slap up a house and expect 10 offers.

Talk to a lot of brokers and do tons of investigation.

Give yourself room to offer discounts on the price and money to market the house.

know what tier you plan to sell to and which market is healthy. Are you selling to first time buyer, move up or lux. know the trends related to those market and your area etc.

N/A N/A · Answer

I'm gona +19192381234 that.

we're gonna start our next spec here in march.  can't wait!
but you gotta admit that it is fun as hell.

Jim & Michele Wilcox · Answer

We're building a spec house right now. It is an expensive one and will probably take 18 months to complete. If you build something that is desireable, in a desireable area - people will want to buy it - usually before it is done. There are always people looking for houses - in good and bad markets - all price ranges.

My one caveat - if you have never built a spec home before, think twice. Unless you totally understand the building process and how it works, you will have a hard time ahead. People think it is very easy, its not - you need to be able to schedule and budget and work with people and do 101 things at once. I've seen so many novice builders start a project only to abandon it because its too much work - start skimping, taking shortcuts to get done, build a non-quality house, and then can't sell it. It is a very time consuming process -- not to mention expensive if you have to pay interest payments along the way.

Give it some good thought. Good luck.

N/A N/A · Answer

If your market is still hot it can work out fine.  If not, can you afford to carry the mortgage on the home if it doesn't sell for months and months???  Personally I think you are late to the party on this idea.

Toby Munk · Answer

Since nobody has replied since October I am not sure how far along you are.

Here a couple of thoughts

1) The NY times writing something is a very general statement. Real Estate markets are much more local. One market can be hot and 100 miles away its a buyer's market.

2) In my oppinion it is much easier to make money on fixing and flipping. If you know how to use some tools and a paint brush you can do a lot of the things yourself = cheap labour.. haha

3) Your question implies that you might not have that much investment experience. If you can not stand to loose some money you should not be geting into building spec homes.

4) As you seem to have no track record it will be tough to figure the total cost of a project... hence you will not know what your profit margin would be and what your downside could be if the market turned on you.

The beaty of flipping is that once the place is renovated you can rent or sell. Rent with positive cash flow or sell for a profit. Either way you can move to the next project and so on.....

These just my 5 cent.