Replies

1. 
   Mike_Smith | Nov 25, 2000 12:27am | #1

   *
   yeah.. don't do it..

   remodelers are too picky.. spec houses are commodities...

   you have to have a complete frontal lobotomy to get rid of all your ideas about building...

   if you want new construction.. find a customer who is looking for a custom builder.. you'll both be better off...

   b but hey, whadda i no ?

1. 
   Mad_Dog | Nov 25, 2000 02:10am | #2

   *I can never understand how anyone can work with $/square foot for whole house/addition/remodeling. Is there really a way you guys can use square footage? What about all the variation in components? Or do you just use the cheapest crap you can buy for everything?

1. 
   Boss_Hog | Nov 25, 2000 02:17am | #3

   *I'm starting a spec house that's about 1,700 square feet plus a 2 car garage. The estimate worked out to a cost of $140,000 including a $20,000 lot. But - Like Mad Dog said - there are tons of variables in material costs.

1. 
   L._Siders | Nov 25, 2000 02:20am | #4

   *Around here ya can build for about 68-75 bucks a sq. ft. & sell for 90-95 bucks a sq. ft. I am thinking about building in a subdivision that is for 1100 to 1700 sq. ft homes I expect to have the house panalized & erected.I will sub all out except the trim out & cabinets. (I am a cabinet dealer also) Sub division developer will give me the lot for 90days..My word is all I need to hold a lot. Around here there will be a market for affordable homes of about 700 units in the next 2 years.Affordable is defined as homes from 1100 to 1700 sq. ft.

1. 
   Michael_Eckert | Nov 25, 2000 02:30am | #5

   *Mark,What came first, the chicken or the egg? Mike suggests not to do it but to start as a custom builder. The problem there is how do you convince your first customer you can do it? The jump from remodeler to homebuilder is a difficult one. Next, can you stomach the wait? My first spec took 18 months to sell. My second sold 3 months into construction and my 3rd is still sitting. If you don't have adequate cashflow or working capital to back you up you'll end up in trouble real fast! Spec = speculative. Be prepared to lose money on the spec. I've lost money on 2 of my 3 specs. I've sold an average of 3 homes off each and made money on the customs. If you're building it to make money, good luck. If you're building it to show off your workmanship for custom builds you'll do better. And ditch those square footage cost estimates. You don't buy a car by the pound so don't try to estimate your costs for something as complex as a house by its square footage.

2. 
   Scott_Chadbourne | Nov 25, 2000 08:56am | #6

   *Mark, I have sold 2 spec homes in the past 13 months. I have analyzed the square foot price on these two homes and found that the Realtors are realizing more of the square foot price than the electritians, HVAC people and go figure, even the plumber. For example, take a $150,000 house. The Realtor asks for 8% commision. $150,000 x 8% =$12,000. If you amortize that $12,000 for 20 years @ 8.5% you have the Realtor "contributing" $104.14 a month to your prospective buyers mortgage payment per month.[thats $33,633.60 over the life of the mortgage] The market will dictate the price you sell your house for. The secret to making a profit on it is by controlling your costs without compromising the structure's integrity. I plan on buying a good fixer-upper to work on for a couple of months before I start my next house. To make a short story long, shop around and negotiate commision if you use a Realtor. Good Luck and have a Moxie on me.

3. 
   Mark_Helling | Nov 26, 2000 03:12pm | #7

   *Scott, where are you that Realtors get 8%? Here in Cincinnati they are lucky to get 6% and many only charge 4 to 5%.Some good friends of mine decided to get into the big bucks and build a spec house. Finally sold 14 months after they finished and after they PAID $8,000 to get it off their hands. Another guy I know who is a Realtor found a cheap lot and decided to do the same thing. It finally sold 10 months after completion and after the bank holding the construction loan took the house, auctioned it, and sued the Realtor for the difference. Timing is everything too. We just came off a tremendous building boom but talk is it has slowed considerably. Don't get caught holding a house in a down turn.

4. 
   The_Tennis_Court_Builder_...on_t | Nov 26, 2000 05:37pm | #8

   *1988 was the end of our boom in Upstate NY...And everybody was spec building on freely fronted lots and frame packages...Two lumber yards went bankrupt, one was bought out, and one survived (no free frames.) Half the small builders went under and all the spec builders went belly up.When it looks too good to be true...it is. The stock market grew too fast for the last three years...It may just oscillate now for years slowly stomping any fool that thinks it is back on track, buys only to see it fall, then worried sells for a loss. If ya like giving money away, just send it to me.near the stream,ajNow if ya built a spec to live in, then you will do OK. Sell your home first. Problem is, does your wife and kids want to uproot just to make a buck? Not.

5. 
   Mike_Smith | Nov 26, 2000 05:48pm | #9

   *aj makes a good point... it is safer for a small builder to use a move-up strategy...building a house for his / her own family... then moving in...tax wise... you hold the house for a couple years , it is owner occupied.. no tax if you reinvest..and ultimately no tax, when you retire aqnd move to florida so you can vote there....most small builders put too much into the house and not enough into the most important item... location, location... location.....been there... done that... my last spec was 1976,couldn't sell until '84.... six month before the local market turned around......by holding for 8 years , we got out whole......

6. 
   Mike_Willms | Nov 26, 2000 08:52pm | #10

   *I have to agree with AJ. Living in a spec after completion is probably the best way to go. We're currently on our 3rd spec. This one we haven't moved into. It's only been on the market 3 months, so I really can't complain yet. However, when it comes to making 2 mortgage payments, you defineatly feel the pinch! My suggestion: build a spec cash, or with little borrowed. You can tell the spec builders that work this way, they're relaxed. They don't rush through construction or cut corners (mostly). Not to say if you don't have the equity you're workmanship will suffer. But if you don't have to worry about financing, payments, or the "quick sale" of a spec, it will make it much easier to spend your time doing what you enjoy......Building. Amen.

7. 
   doug_hubbard | Nov 26, 2000 09:36pm | #11

   *Mark-Spec houses are great! Sell one or two and the banks will give you all the money you need to hang yourself. If you're going to build them use an investor's money- someone that can afford to lose for a while.I have been down this road- money really is good if you build the right house in the right place at the right time.You need to have a good relationship (or very deep pockets) with your investor when it takes a while to sell.Quality, quality, quality and location location location- will sell your house.You will not get rich or even find a better market selling specs.Remodel and build new contract homesyour money is better spent advertisingI just learned this...

8. 
   HVbuilds_ | Nov 27, 2000 12:39am | #12

   *Mark, $175,000? Do some math before you go to the bank. Rule of thumb is that land cost should be 25% of total project cost. What is your company's cost of doing business (wages, rent, insurance, etc) for the four months it will take to build this house? How much profit do YOU want make? What about the relators comissions? I think you should look at the costs of the project before you set the selling price. Take your time to analyze the project on paper and if you do build a sped, try not to personalize it too much.Good luck!HVbuilds

9. 
   Scott_Chadbourne | Nov 27, 2000 02:08am | #13

   *Mark, Haven't seen 4% realtor commisions in almost 15 or so years in my area ..... Southern Illinois. Personally, I won't pay more than 5%. I'm getting to feel a little paranoid about starting another spec so will remodel for a few months to see how the economy fares with our new [?] president. Some kid on TV suggested that we give both canidates a broom stick each and however breaks it over their head first wins. I remember the early 80's in the building business too well after the boom in the late 70's.

10. 
    Jim_Walters | Nov 28, 2000 01:19pm | #14

    *For thirty years I've wanted to build a spec home and every time I got serious I heard another horror story. Now, I love to play poker and really don't mind it when I drop a couple hundred bucks, but I don't have the balls to live with a nervous woman who keeps asking everytime I walk in the door "Well, did you sell the damn thing yet? I told you... I told you...I told you........ Custom building and up-front money is the only way to go for me.

11. 
    Scott_Chadbourne | Nov 29, 2000 01:44pm | #15

    *Jim, "Nervous woman" [wife]....... okay, okay, I'll come clean. Definately a major factor why I'm waiting to start another spec house to spring. :-)

2. 
   Mark_Goode | Nov 29, 2000 01:44pm | #16

   *
   I`m thinking of breaking away from remodeling and trying a hand at building spec houses. Anybody have typical costs for doing so? This would be done by a small crew(myself and a helper). I`m looking at 1700 sq. ft., full foundation, Cape style, gararge,medium cost interior/exterior finishes. What kind of salary and profit margin should I expect? The house would sell for $175,000. Any advice or responses would be greatly appreciated.----Mark in Maine