All Forum Posts by: Rick Soto

Quote from @Mike H.:

That does seem a bit tight for construction costs as we have priced out typical residential a few times. Even with beating up labor, the materials are the materials and thats what seems to push the build costs up.  

As far as margins, it looks like its 180k to 200k plus 22k for the land so 200k to 220k project.  Figure 20k for financing and loan costs. 6k or so for realtor fees.  You're looking at 225k to 245k all in.  If it sells for 310k and you make 60k to 80k, I know I'd be happy with that all day long.

As for the other mention that other lenders could do it for less cash into the deal, it doesn't look that bad.  You're getting 140k which leaves you needing 60k to 80k out of pocket.  Hard to scale.  But once you do a couple, then maybe they will give you a better LTC (closer to 90%).  If they don't, there are other lenders that will and it may be worth paying the higher interest rate that they'll charge so you don't have to tie up that much capital.

But that really only matters if you want to scale.  If you're just going to build one or even two at a time, why not stick with that? That rate is really good. And closing costs aren't terrible. 

Interestingly enough, we're a builder in eastern tn (gatlinburg, sevierville).  Up til now we've only been building rental cabins.  But I have been running the numbers on owner occupied residential out there and those are remotely some of the numbers I'm seeing. 

We've got a 3/2, 1,300 sq ft model that we priced everything out for at about 170k to 180 for the build.  Figure 30k to 40k for the lot. And then an estimated sales price of about 320k to 340k.  Its not the same margins we're getting on the cabins.  But I think they're easier to build so they'll go up quicker and even if we can make 50k or more, then why not do 5 or 6 of those a year? 

And if the market for buyers were to dry up, we could always eat those as rentals.  We'd refinance and pull all our money out. On a 210k loan, we'd be paying around 1400/mo. taxes would be 100/mo or less (taxes are so ridiculously cheap in tenn its silly).  Insurance 150/mo. And theyd rent for about 2200.  I don't like long term rentals any more. But it would always be an option if something really bad happened. 

 we just did this in our market we are doing infill and it was 40k for the lot and 40-60k profit at a 450k sale price but infill homes are selling in columbus new construction for an average of 600k so we said let's look at the zones where those are in and the land is more it's 60-90k but you make 80-120k. same thing. better location a little more for land but much higher returns and less new builds. I think there is something to say about what you are pointing out above. 

Quote from @Jaycee Greene:

Quote from @Rick Soto:

We were recently approved by the bank to start our first spec home project (we have done it many times for other investors, first time doing the whole deal on our own). The home will be around 1800sqft 3/2, we are estimating 180k-200k in construction costs plus land, which was 22k for 1 acre, land was preowned. Homes with these specs sell for around 310k in our market.

The terms the bank is offering are

Loan Amount $140,000

• Term 18 months
• Rate 8% adjusting every 6 months
• As proposed appraisal to support a 70% or better loan to value
• Estimated closing costs of $8,223.

What do you guys think of this financing deal?, and what should I be looking as far as net profit margin on a build like this?.
Also, as I build up my credibility as a builder, what is the best financing structure I should be asking for from a bank?

Thank you!

 @Rick Soto Two quick questions. How long will it take to build? Are you able to build at ~$100/SF?

agreed we are at 100 a foot with just hook up fees and permits and framed house.. Its insane how cheap you guys can build in some of these markets.. Like Texas . But then again when I look at the quality I can somewhat see how.. At least in the build to rent stuff.

As for terms for a first time borrower those are EXCELLENT good job.. 

@Rick Soto, congrats on taking the leap into your first spec home build under your own name. Based on the numbers, your deal has solid potential, but let’s break it down.

1️⃣ Evaluating the Financing Terms

Your bank loan structure is fairly standard for a first-time spec builder, but there are a few things to keep in mind:
✅ 8% interest is on the higher side but not unusual for a construction loan. If possible, negotiate a fixed rate for the full term rather than an adjustment every 6 months—especially in a rising rate environment.
✅ 18-month term gives you some breathing room, but a build like this should ideally take 6-9 months, leaving extra time for selling and closing.
✅ $8,223 in closing costs seems a bit steep. It may include origination fees, inspections, and legal fees, so I’d ask for a breakdown.

Your biggest risk is the 70% loan-to-value (LTV) requirement. If costs rise unexpectedly and your LTV dips below 70%, the bank may require you to bring additional funds to closing. Make sure you have contingency funds available.

2️⃣ Net Profit Margin Analysis

A general rule of thumb for spec homes is to target at least a 20-25% margin before financing costs. Based on your numbers:

• Expected Sale Price: ~$310K
• Estimated Build Cost (including land): ~$222K
• Potential Gross Profit: ~$88K
• Less Closing Costs & Interest (~$15K+): ~$73K estimated profit

That’s about 23-25% profit, which is solid. However, labor/material overruns and market shifts can quickly eat into that.

💡 To increase profitability:

• Lock in material costs early
• Get multiple bids on subcontractor work
• Pre-sell if possible to reduce holding time

3️⃣ Future Financing Strategy

Once you have a successful spec build under your belt, you can start negotiating better financing terms with banks:
✔ Higher LTV (e.g., 80-85% instead of 70%) so you bring less cash upfront
✔ Lower interest rates (~6-7% is more competitive for repeat builders)
✔ A revolving credit line or builder LOC instead of project-based financing

This first deal is all about proving execution. If you can complete the build on time and sell quickly, you’ll have leverage with banks for better terms next time.

Final Thoughts

Your deal looks strong, but keep an eye on cost overruns and financing flexibility. If possible, negotiate a fixed rate, confirm contingency reserves, and look for ways to cut closing costs.

You’re on the right track—best of luck with your first solo project! Let me know if you’d like to discuss further.

That does seem a bit tight for construction costs as we have priced out typical residential a few times. Even with beating up labor, the materials are the materials and thats what seems to push the build costs up.  

As far as margins, it looks like its 180k to 200k plus 22k for the land so 200k to 220k project.  Figure 20k for financing and loan costs. 6k or so for realtor fees.  You're looking at 225k to 245k all in.  If it sells for 310k and you make 60k to 80k, I know I'd be happy with that all day long.

As for the other mention that other lenders could do it for less cash into the deal, it doesn't look that bad.  You're getting 140k which leaves you needing 60k to 80k out of pocket.  Hard to scale.  But once you do a couple, then maybe they will give you a better LTC (closer to 90%).  If they don't, there are other lenders that will and it may be worth paying the higher interest rate that they'll charge so you don't have to tie up that much capital.

But that really only matters if you want to scale.  If you're just going to build one or even two at a time, why not stick with that? That rate is really good. And closing costs aren't terrible. 

Interestingly enough, we're a builder in eastern tn (gatlinburg, sevierville).  Up til now we've only been building rental cabins.  But I have been running the numbers on owner occupied residential out there and those are remotely some of the numbers I'm seeing. 

We've got a 3/2, 1,300 sq ft model that we priced everything out for at about 170k to 180 for the build.  Figure 30k to 40k for the lot. And then an estimated sales price of about 320k to 340k.  Its not the same margins we're getting on the cabins.  But I think they're easier to build so they'll go up quicker and even if we can make 50k or more, then why not do 5 or 6 of those a year? 

And if the market for buyers were to dry up, we could always eat those as rentals.  We'd refinance and pull all our money out. On a 210k loan, we'd be paying around 1400/mo. taxes would be 100/mo or less (taxes are so ridiculously cheap in tenn its silly).  Insurance 150/mo. And theyd rent for about 2200.  I don't like long term rentals any more. But it would always be an option if something really bad happened. 

Quote from @Rick Soto:

We were recently approved by the bank to start our first spec home project (we have done it many times for other investors, first time doing the whole deal on our own). The home will be around 1800sqft 3/2, we are estimating 180k-200k in construction costs plus land, which was 22k for 1 acre, land was preowned. Homes with these specs sell for around 310k in our market.

The terms the bank is offering are

Loan Amount $140,000

• Term 18 months
• Rate 8% adjusting every 6 months
• As proposed appraisal to support a 70% or better loan to value
• Estimated closing costs of $8,223.

What do you guys think of this financing deal?, and what should I be looking as far as net profit margin on a build like this?.
Also, as I build up my credibility as a builder, what is the best financing structure I should be asking for from a bank?

Thank you!

 @Rick Soto Two quick questions. How long will it take to build? Are you able to build at ~$100/SF?