Ok, let me start by saying
a. I, like anyone who has hung around here more than a week, have read Boss’s “Spec House from Hell” thread.
2. No, not now in this economy. I’m looking at future projects
So the question is……
If you’ve built more than one Spec?
How did you plan for salary and income?
Did you pick the house, price the build and just accept the difference between cost and sale as your income?
Or do you project a certain percentage of the total sale price as your profit?
DO you plan for a specific % of projected sale price to cover overhead, your salary and a profit for the business?
And if so, what do see as an acceptable % for your troubles?
I’ve asked this question before and I’ve come to a conclusion.
Too many guys just build the house and hope they make money. They have no money built in for their own salary (management fee) and have no idea if they did well or not.
I attribute that to the fact that in the last 10 years so many people have been “Builders” as an investment, not as a job.
My wife and I have agreed that I won’t stay at this job for more than ten more years. It’s just too hard on the family.
With that amount of time to plan I’m looking at building some of the plans that have been sitting on my desk since before my daughter got sick.
I’ve built from footings to move in before but never as the “Builder”.
The time is soon right to purchase some nice land cheap, and hold until it’s time.
SO now I’m just double checking my work.
Replies
You wanna make on a spec house?
Infill lot, 1200sqft (no more), three bedroom, bath and a half, in a nice established community.
Forget about those palaces we were building two years ago, there's too many of them and if someone can afford them, they cant afford to heat them.
My RE guys tell me the only thing mobing right now is what I described to you.
Family.....They're always there when they need you.
I see a bottom in the next 18 months and then maybe 12-18 months there.
After that I believe that much like you described, a small well built house will be the way to go.
Infills aren't worth the aggrevation around here................on the other hand there will be plenty of building lots available dirt cheap in the near future
I've done a couple specs and neither worked out.
I would be wary about picking up land right now. Very wary. I think the entire country will go down the same path as MI already has. Right now in MI, the banks are selling lots for 10k in a sub that originally sold them for 110k.
So, if you decide to buy land and hold it, don't be surprised to find out that it loses 90% value because I already warned you!
Not to Hi-jack,butt-
That bus thing you had going on last year, did it work out?
Hope all is well, some tough times right now for many!
We got 2 houses now & as long as were working it's ok, but to many we know facing the dark side.
We also do the spec house with the 2-3 year turn over.
Remember you also had a flip, hope that worked out for you?
Lost on the flip due to the mortgage meltdown.
The bus is here in Austin but we couldn't outfit it with equipment. The frame and flooring and structure was too rusted. We are going to use it for seating instead and it will be a great marketing tool.
I'm finishing a bathroom and will be starting work on the bus and site next. The opening date is the last week of March when the main trailer with the equipment will be done.
I probably will soon be wearing an icecream cone costume instead of building LOL!
Edit: We felt fortunate to be able to get rid of the flip, even though we took a hit. I believe that the buyers will take another 25% hit before it's all done.
Edited 2/17/2009 6:31 pm ET by jimAKAblue
Ice cream will probabley be more recession prof .
My 2 cents. If you want to build a spec house. build on on a low grade, make it fully barrier free. ADA compiant in the states it believe? 36 inch doors every were 4 foot halls and a big legal bathroom et al.
That I feel will sell faster that all the crown moldings and bling.
The way healthcare and insurance companies go is to keep people or return them to their home. most houses need a major refit which is a real PITA. The top of my house will accomodate as we age. What our guest room is a legal suite and kitchen dining entry exit.
and after that strict instructions to roll us into the lake for recycling.If they don't tax us to death we will get older and need the luxury of no stairs!
Sorry about the flip, glad you still got your Pride!
Hope the bus thing works out. This building biz is killing all of us, who would have thought this was going to get as big as it has?
We know we have enough work until June, let's hope things break for the better real quick!
At least we all got our health, so I ain't Bitc#ing!
I'm not crying about that flip. Nothing ventured, nothing gained.
Heres a pic of the bus arriving in Austin. Of course, the batteries were dead and we had to tow me off the trailer. Luckily, we were on a street with a pretty good slope so he towed me up the road a bit and it coasted into it resting spot. It will run but I'm going to attach a hitch to it and tow it with my truck to the store site.
Heres the picture of the bus that was supposed to be in the post above Ponytls.
What's the plan for the bus?
We are going to use it for seating.
Mainly it's an eyecatcher though.
Seating for who/what, and catching who's eyes? Sorry I must have missed this elsewhere, not being a tavern dude and all.
it's a long story. Well...not that long.
We origninally were going to outfit the double decker bus and used it as a mobile ice cream story. Frozen Custard to be more specific. When we figured out that the substructure couldn't bear the weight of the equipment, we decided to just park the bus on the lot where we will be selling out of a different mobile unit.
Anyways, I have to figure out how to put a roof on this beast and I don't have much money to work with. The suggestion have been: canvas, open air with patio umbrellas, fiberglass, framed and metal. You any good at designing cheap bus roof?
FYI... i have 30,000 sf of resturant, bar and commercial kitchen equipment... I have never tried hard to sell any of it... but last 6mo i've kept an ad on craigslist... It seems there are 100 people local getting ready to open some type business where they need equipment... guess they are all try'n to make themself a job...
not sure whats left of it but i did have a complete baskin robins store... came from the NAS @ millington when they shut the base down...
let me know if you are looking for anything i can help you with
P
I appreciate the offer Ponytl but I think the boss already has everything contracted. I'll ask her and see if she's be interested in anything. I highly doubt it though....we are already past the point of no return...meaning the exact shape, size and power requirements are already in the works on the fabrication end.
I shoulda thought about you before we spend the big bucks on new stuff LOL.
You may be right but here in OR by the beach the land is so expensive it only works out to bigger homes. Maybe this will change soon though, As of yet prices have not come down much
>>As of yet prices have not come down much
Is that indicated by actual closed sales, or by delusional asking prices? Around here it's the latter.
Not many sales but i dont think people have adjusted yet to knowing there houses are not worth as much. The RE said anything under 200 grand will sell but there are only a few bombs or teardowns for that.
or by delusional asking prices? Around here it's the latter
Ya got that right, house a block away has a 650K price tag on it, next door to it almost same style and size, sold for just $220K tenyears ago. Kinda got overpriced, folk here still think they are 'taking a loss' if they cant sell what they bought a few years ago for twice what they paid.
No one mentioned the beach. I would think that would be a custom build not a spec anyway.
Family.....They're always there when they need you.
Yes your right just saying where i am . What do lots go for by you????
I've never built from scratch so i'd be the wrong one to ask. I couldnt even give an educated guess.
Family.....They're always there when they need you.
My personal crystal ball (which sometimes actually works) says that the "houses of the future" will be smallish foot print, single story, 3/2 houses.The market will be boomers who need/want to downsize and have long since lost their fascination with stairs and big yards.
There's a friend of mine that feels the same way. He'll go one further and suggest that the market wiil level off at 1980's pricing and not recover for a loooonng time. He sees new subdivisions of what I suggested built on a slab with a garage.
The inventory is way over inflated with these Mcmansions.
Family.....They're always there when they need you.
The time is soon right
From 65 years of perspective, the bottom is probably 5 years from now yet.....IMHO
i built 2 in the early-mid '70's... decided i wasn't cut out for spec building
my problem was i wasn't building them for profit, but rather for ego... i always wanted to put more in than the market called for
anyways... i think spec -building requires a certain mind-set about saving money.... good-enough.... visible details instead of hidden quality
first house was fine... i sold into a rising market
2d house i finished in a falling market and owned it for 7 years... finally sold it about '83 for $65K...... right before the market turned.. a year later it would have fetched $165..... if i had held on until about '88... it would have sat on the market again
if i sold it in 2006.. i could have got $500K and had people bidding on it
today... it would sit on the market at $350K
location... sizzle... and TIMING....
back in the day.. i could get a construction loan and pay me and the guys out of the proceeds... at the end of construction, i could either sell it or convert to a conventional mortgage
nowadays ????????
small builders should always be prepared to live in their spec house if that's what it takes to survive
i was doing some on-line training on a webinair about a month ago... one of the guys was sitting on 4 complete specs.... and his only plan was to sell them.... i think his back-up plan should be to commit hari-kari..
i can't conceive ( had to speel that 1 .... 2x... finally rememberd the olde "i beforee "e, unless after "c ) of sitting on 4 specs in this market
i forget how he termed it... but my impression was he was hoping for the best ( ???? )
robert.... if i was your age... i'd build what i like.... and live in it long enough to qualify for the joint $500K capital-gains exclusion.... then build another.... and repeat... then another... and repeat.....
i assume you would be doing this after you get your 20 in... so it could be ideal... if yu can convince your family that this would be a good idea
robert.... if i was your age... i'd build what i like.... and live in it long enough to qualify for the joint $500K capital-gains exclusion.... then build another.... and repeat... then another... and repeat.....
listen to what the man said...........
robert.... if i was your age... i'd build what i like.... and live in it long enough to qualify for the joint $500K capital-gains exclusion.... then build another.... and repeat... then another... and repeat.....
listen to what the man said...........
A big amen to what Mike said.... only thing better would be to help grandkids build their own house after retirement.......
Based on what is on my desk now?
We could probably afford to carry for some time if we needed to. Of course that is assuming the oldest one graduates college in the near future.
What I'm looking at is small starter home type housing.
I'm betting on harder to get mortgages and more fiscal restraint in the near to mid term future.
problem with small starter homes is they have a smaller ratio of profit to land costMike Hussein Smith Rhode Island : Design / Build / Repair / Restore
problem with small starter homes is they have a smaller ratio of profit to land cost
That's why the question.
I anticipate it being a land buyers market real soon. Of course I'll probably not buy at the very bottom but rather at the first sign of an uptick.
I'll be in position to carry one at a time out of pocket.
But the question remains?
What is an acceptable margin on a $200K product?
I would imagine between 4 and 6 a year.
well...... let's assume you have limited capital.....
and at the bottom of the land market, you can pick up two affordable housing lots at $100K ( 50 each )
at the same time, in a better area of town... you can pick up an upscale lot at $150
when the market turns... which purchase will yield a better return on investment
AND which will make more money.. the land.... or the house on the land ?
my biggest mistake ever.... when our town put in new zoning they made the commercial land comply with very stringent requuirements for set bvack.. and parking...
it was obvious that there was not enough undeveloped commercial land that could allow commercial development for the town's future needs... i designed , planned and assembled investors to develop a commercial condominium...
brought it to market in the depths of a statewide depression
i wound up buying one of the units for $90 K
i could have bought 2 small homes in the village area for the same amount
16 years later, i sold the condo for 120K.... at that time i could have sold those two small homes for $300K each
lesson: some things appreciate faster than other thingsMike Hussein Smith Rhode Island : Design / Build / Repair / Restore
I've always done well with raw land.
And, have always done well picking which pieces to buy.
North of me lies a substantial amount of un/under developed land that I believe will be the base for the next build up.
More than a few financial companies have been looking in this area and now we've got a few casinos.
I think that we'll see growth in the mid term future. Probably sooner than most.
And either way? I won't lose on the land. Provided I buy it right.
I'm going to go ahead and buy it anyway. Just not sure what I'm going to do with it yet.
if you're buying raw land.. check the zoning... can you park a project on it so it will carry itself... like a trailer park... or a golf driving range.... or a self-storage
things that cover the carrying costs until the land appreciates or development surrounds itMike Hussein Smith Rhode Island : Design / Build / Repair / Restore
All of the above.
Most of what I've looked at is cheap enough to pay cash and then just suck up the taxes until such time as I sell or build.
Northeastern P.A. has some pretty wild price swings in terms of property.
robert - Have you stated yet who your target market is in the area where these lots are? Working class, retirement, city folks running away to the country, 2nd home, etc., etc. You have to consider everything. A lot of guys went all in, hoping the music wouldn't stop.May be too early to tell, if it's an undeveloped area. But any spec house I've built had the most amount of thought put into "what kind of person my buyer might be".I've done well but that was because of timing(luck), tourism, and pricing according to my assumed buyer's eligibility for a mortgage.I'll second what someone said about paying too much attention to quality and special touches. It may light up the buyer's eyes, but in the end it's the appraiser who tells you how much all that extra time cost you.Also, if you think you've found some "jackpot" property, be careful because there's a lot of big fish out there who research and know a lot more (future) about the next big thing. That's why it's usually safer to just follow the trends. The current McMansion crises is partly due to builders getting overzealous and ignoring the real trends. I know, that so called trend was max s.f., a bathtub for every bedroom, gables on top of gables, and so on, but I think that's one trend that wasn't "tried and true".Tell us about your area, and I think we'll have a better feeling of what you're dealing with. Fill in your profile. It's a big world out there and a spec in Kansas is a lot different than a spec in California (well it used to be anyway). Last point - zoning (read planning and zoning) can make or break an area real fast.O.K.- real last point (can't stop thinking now) - Consider all your costs, and I mean all - gas, travel time, property tax, income tax, real estate commision, closing costs, surveys, future tap fees(talk to the utilities about future), etc.,etc. - then compare that to compounding interest on money in the bank or other safe investment. Percentages? Build fast, sell faster, keep costs down everywhere possible, hopefully make a decent profit. List the house as soon as you're definite on the floor plan!
"What is an acceptable margin on a $200K product?"So you've decided on the selling price already?Honestly, not busting your chops, but irrelevant. If the house you build will sell for $200k, the question is how much do you need, what is your cost based on your time and money invested? Lots of business plans have produced a $300k unit that sold for $200k, what you want is the $100k input that sells for $200k. Best of luck.
"small builders should always be prepared to live in their spec house if that's what it takes to survive"that's what happened to my grandfather in1930. Lived there until he died 30 years later.
part of the problem now is builders fed off the houses they were building... made their money building them... I know several guys in this boat... they could have built for say $100sf but the banks believed it's sell for $250sf so they allowed the builder to draw out maybe $225sf on them... now the banks are stuck and the builders don't care.... they have made their money... hell they were give'n the buyers 20-30 k just to buy em... to keep comps up they had to buy back a few... so they could keep going... (why would someone buy a resale at market (false) when they could buy the nw one and get the cash back... all it took was 1 resale at real value which then screwed the comps on all future sales... so the builder walked...
BUT to get to your spec question... I'll have 5 small paid for lots when i finish my loft project... they will be gated with the lofts and use the same drive...
I'm looking at maintance free as you can get... 2 story... 2 car garage that would be somewhat finished so that you could use it for gatherings if needed... 3br 2 small and a nice master (some things people won't give up... ) simple mechanicals on a common chase... even think'n a metal roof pitched front to back.. with a package HVAC unit on the roof... small foot print.... nice kitchen ... open main area... bedrooms up...
Building like any business YOU make your money buy'n... any money you don't spend is money you'll make... if you think you can just pick up the phone and order everything you'll need you'll increase your cost 30%... soft cost can be huge... interest... insurance... fees plans... legal... this can equal 20%...
with an aging population... I'd look at "mother in law" wings... it cost a min of 8k a month to keep a loved one in a nursing home... I think this will become a huge market...
how much can you make on a 200k home? and how many can you build/sell in a year?
IF you can build on your own dime... then you can take your time... find the deals and still build a nice house... real sure i can build NICE for under $50sf thats materials and labor.... few soft costs... maybe less if i have alot of time...
homes are still selling... slow yes... but there will always be homes purchased and sold...
p
You need to know your real estate market.
When you're ready to list, what type of home will be in demand/marketable in your area?
Can you build it/sell it for acceptable profit based on comps?
Mike H Smith is very smart man.
To answer your question, you build a proforma (I use excel) that figures land, closing costs, construction costs, interest, soft costs (a percentage of vehicle, phone, insurance, etc.), realtor commissions, closing costs on the outsale, contingency monies, operating costs including some compensation for super and laborer, etc.(Traditional goal is around 5% of revenue for soft construction cost and compensation but for 1 spec that number might not work)
Then the rest is company profit goal. If the company is not making a respectable profit after figuring in everything, it might not make sense to complete the project. (you can always take a hit on some of the stuff but dont want to loose money)
Oh, by the way, I have a spec sitting. UGGGGHHHHHH
Where is yours sitting?
And what price range if you don't mind.
I have an excel spreadsheet done.
I just haven't decided if my profit goal is to ambitous or leave too much on the table
Spec is in Collegeville Pennsylvania, a suburb of Philadelphia. (Just North of Norristown and home to Ursinus College)
In the good market should have sold for around $550+
Currently on market for $469K
There are no negatives to the house or the property, just that 5-8 year old resales are selling for $420K and there are only a couple selling.
We actually did everything right on this one except bought the land in the up market which puts us probably $50K over where we could sell it and make a little money.
I'll be lucky to walk away breakeven.
Ok
You've asked the question a few times.
Go get NAHB books on financing and projected costs, etc.
NAHB will say (if memory serves me) that a target direct profit would be 25%-30% and then after Admin, sales, and operations costs, gross pretax profit would be around 15-18%.
I've been to seminars and they told us the actual builder figures for the "Builder 20 Clubs" which is a grouping of 20 like sized builders who are members of NAHB. They get the builders financial info (there were over 20 groups when I was involved so a few hundred builders) and many had profit margins in the single digits, some were will into the 20%'s with Gross pretax profit.
Remember, that is after paying everyone including supervision, however, I would want to have a full time job other than that as well. (need money coming in and cant plan on borrowing against the loans or trades wont get paid)
NE PA you say??
Which part? I hunt NE pa. Wayne, Susquehanna and Lackuanna (sp) counties.
Jeff in SE PA
The 20% net that NAHB's uses is what I've used as a target for all of my figures.
I actually hvae the books already.
The reason I aksed the question mirrors what you said in your post.
I've met guys who claim to make 25 -30% NET
And
Guys who I know are lucky to break into double digits.
And from many of the responses I've gotten here and elsewhere?
I've come to the conclusion that few actually know what they make or have a target figure to work off of.
I'm wondering if that is not key to the problems many face?
I'm west of Allentown. Between Allentown and Kutztown.
Struggling to sell in Collegeville?
So far things have stayed pretty level in my neighborhood......but just a few miles away?
Townhouses that were selling for $200K when I left last November were going for $145K when I came home this November.
You are right that many dont have a clue.
I am not doing a great job tracking everything right now but working with my hands a lot (6-9 hrs per day) and accounting is being neglected a little. (still getting all the bills paid and staying afloat)
I've worked for 4 homebuilders in my life.
2 big business corporations, 2 small local builders (20-150 homes per year)
I ran operations.
1 company knew exactly what they made on every home, and knew relative to what they had planned to make, and knew exactly why they made more or less than planned.
1 company got close after I worked there for about a year
1 company got close after I worked there for about 3 years.
1 company did not have any control though they were the most controlling.
A good software program and diligent costing is the only way to really know.
It is a lot of work but it is funny, when you really understand it, you can work the numbers and make sure that you cost it properly and rework spec's and contractors to that you are profitable!
I should be on the speaking circuit because I lived, ate and breathed it for 20 years and mastered it.
1200 to 1800 sq ft tops. If you can make money on homes that sell for less than 165K then that would be the way to go. Then pray someone comes along and wants you to build a big un.