How do you go about building a spec home?

Answer 1

A newly built "spec" home is nothing more than a new home built before a buyer has agreed to buy it. It is built on "speculation". It is a common practice in active real estate markets because new home builders can be reasonable sure that a buyer will be found either before the home is finished or shortly thereafter. They usually do their homework and build a house that will appeal to the broadest number of potential buyers, thereby upping the odds that the house will sell on a timely basis.

If you want to build a spec house, you need to decide where you want to build it and decide on the exact house you wish to build. Next step is to estimate the cost to build and determine the likely selling price as well as the likelihood of it selling in a timely manner.

From there, you need to purchase the lot, secure building permits, and actually build the house. At the same time, you will have to execute your marketing plan to sell the house. If all goes according to plan, you will realize a nice profit. If it doesn't, you could face disaster. It doesn't take long for the interest costs on the construction loan to eat up any potential profits. You can easily find yourself losing money if the house doesn't sell quickly.

At the present time, there is a definate nationwide softening of the real estate market in the USA. Many professional builders overbuilt the market and now find themselves with a backlog of finished house inventory. It is a dangerous time to build spec housing unless you intend to build in an area that has remained hot. Those areas are few and far between.

Best advice is to do your homework very carefully before you attempt to jump on the spec home real estate bandwagon. You could find yourself falling off very quickly.

Good luck with your building and real estate endeavors.