Replies

1. 
   Boss_Hog | Jan 21, 2002 09:26pm | #1

   *
   A spec home is one you build, thinking someone will come along and buy at a later date and you can make a lot of money. Then no one buys it, it sucks your finances dry, and you end up losing your ass on it.

1. 
   pantango | Jan 21, 2002 09:54pm | #2

   *Oh, that doesn't sound so good. Spec an abbreviation for what?

1. 
   Mike_Smith | Jan 21, 2002 10:06pm | #3

   *speculation

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   Boss_Hog | Jan 22, 2002 01:39am | #4

   *Basically you're building a house and speculating that someone will buy it and you'll make money off of it.The reason I'm so cynical about it is that I built one last year, and it's eating up $800 in interest every month. I'm pretty certain I'll be lucky to make it out of the situation without losing money, and I'll most likely never build another one.

1. 
   blue_eyed_devil_ | Jan 22, 2002 03:27pm | #5

   *Ron have you attempted to sell it using creative financing?blue

2. 
   Boss_Hog | Jan 22, 2002 04:39pm | #6

   *Nope. Don't know anything about it, and don't really care to learn any new tricks at this point in my life.

3. 
   S._W._Morgan | Jan 22, 2002 04:59pm | #7

   *I build several spec homes each year and do fairly well with it. I have had some that have sat a while and even moved into one. I have two going right now and getting a third designed. The key for me has been to be in the right market. I won't touch one under $250K. There are too many guys out there that decide to build what THEY can afford if they had to keep it rather than on what the market can afford. Consequently,,,around here there are hundreds of homes on the market under $200k making some big competition. Not as many for sale in my price range. I just closed on one last week and made about $20K in profit and made close to another $20K in wages through the project. Good Luck.Sam Morgan S. W. Morgan Fine Homes

4. 
   blue_eyed_devil_ | Jan 22, 2002 05:11pm | #8

   *Ron, that explains why you're still sitting on a house that won't move.It's tough getting old....blue

5. 
   Stray_ | Jan 22, 2002 06:28pm | #9

   *For those that have done it/doing it...When do you start advertising the home? Do you finish the house, then call a realtor to list it; or do you call the realtor as soon as you have the lot, permit and a design in hand?

6. 
   Boss_Hog | Jan 22, 2002 09:38pm | #10

   *> that explains why you're still sitting on a house that won't move.Sorry - I don't buy that at all. I've heard from plenty of people who "have all the answers and think I should do things their way. If your idea was so great, everybody would be doing it.

7. 
   blue_eyed_devil_ | Jan 23, 2002 03:15am | #11

   *That's not true Ron. Not every one that is having a difficult time moving a spec property can use the creative selling techniques. Some absolutely need their cash out now!And some do use the technique. I have two specs in my inventory. They are owned by my bank lady and builder hubby. They are having a hard time selling them due to their location...way out in the sticks. Their is an investment partner involved in the deal. He is a banker. When I inquired about those houses to her, she immediately said that Yes, they were looking at doing a lease option. The banker's only requirement was that the buyer have decent credit and a down payment. Those are the same things I'm looking for....reducing my risk.These techniques are only needed by houses that are selling slow.A simple contract for deed would be similar. Probably better for a new spec home.blue

8. 
   Ted_Temple | Jan 24, 2002 06:26am | #12

   *As a GC I've mixed in spec houses with my business of building custom homes on contract. It's a nice break from the stresses of building for a client but has cash flow and risk factors. My rule is to do a spec when I'm able to do it w/o getting leveraged so that I'm able to sit on it/rent it if I hit a down market, and believe me the people who think they can outguess the market will be rich one year and broke the next. I believe that a wonderful strategy with current tax laws is to build yourself a new house every two years (2yr residency no taxes on gain unless over a certain threshold). A secondary advantage to this strategy is that you are not selling a new home as a spec builder and consequently you don't have the same warranty/liability concerns.

9. 
   mike_westerfield | Jan 24, 2002 06:51am | #13

   *Hey guys, I am a framer by trade, but I started my first spec last July. We wanted to see what the best time we could get it done in. We sold it during the mechanical stage, and the owners took posession in November. Pretty good time for us. Im not suggesting we cut corners or sacraficed quality. We did all the trades we were capable of to keep it moving. It went real well. Too well..... Started the second one in November and am still waitng for the mechanicals to get done. I cant keep up with the pace that we did on the first house, so I am allowing more subs on this job. Ive lost total control of the schedule, but we are still moving along. We got a contract on this one just after we got the foundation in. We just started our third. Do you think three for three, or is this the one where I will be saying I'll never build another one. Actually, it would have to sit a loooooong time to get into my pockets. It will eat into my profit but......... Good luck to everyone, hey were having fun right?

10. 
    SHGLaw | Jan 24, 2002 02:22pm | #14

    *Sam Morgan knows what he's talking about. Spec homes are great if you know what you are doing. It isn't voodoo, but well conceived science. Even that doesn't guarantee a sale, which is contingent on a bunch of factors outside the builder's control, such as economy, market and factors affecting desirability of location. The biggest problem I have seen is that builders don't understand who they are building for or why a house should sell for a particular price. Any house can be sold, it's just a matter of price. But to make money on a spec house, you have to build the right house for the right customer at the right location. Builders can build above or below their level of understanding of the market, and that's where they get hurt.My houses sell in the $1.5+ range. I restore for people in that range. I have a system of positive, negative and neutral to guide what I put into a house, both physically and financially. In other words, I eliminate the negatives, accentuate the positives and leave the neutral factors alone. The key is knowing what is what. But I don't build from scratch, I restore and I do it from the buyers perspective from day 1 and always with a realtor in tow from day 1. SHG

11. 
    Allan_Edwards | Jan 25, 2002 06:12am | #15

    *I like Ted's idea of building a house for yourself, selling every 2-3 years. You can shelter without paying taxes up to $500,000 in gains. Like taking candy from a baby. I am surprised more builders don't do this.I am 51, have made a living building spec's since I was 24. Always had my own company. Started with little construction experience and even less money. I've made money, lost money, some years just kept my head above water, but I've finally learned how to make it building spec's.A few years ago I had a spec that I could not sale, lost $80,000, following year hit a home run and made $350,000 profit on a spec. I build 2 spec's per year priced 1-2 million, also do 2 contract custom homes. Just the right mix, low overhead, control my risks. You can make a lot, you can lose a lot. I've learned so much over the years I would bore everyone with what I think the "spec" answer is, suffice to say it's be a real learning experience.

12. 
    The_Tennis_Court_Builder_...on_t | Jan 25, 2002 04:11pm | #16

    *All that have posted success....post your specs location as I think that has much more to do with success. Some markets just don't sell like my area...Specs got way out of control in the 80s. Now...there may be a few going well but not many. I see the local builders with tie ins to the busiest realtors growing. Many times their wife or some other close friend or relative or business associate is a top selling realtor.near the stream,ajAnd yes... All builders, should build and move every 2 years... You could easily live off the $500,000 tax free bucks allowed per 2 years... Say yaa made 240,000... that's $120,000/yr after taxes, which is like making $200,000 or more before taxes... which is like building $2,000,000 of homes with the equivalent amount of headaches, management, employees, subs, insurance, building sites to find, customers to market to...blah..blah...blah...near the stream,aj

13. 
    blue_eyed_devil_ | Jan 26, 2002 01:58pm | #17

    *Almost all of the builders around here do specs. All buyers don't want to wait 9 months for their new house to be done.Personally, I wouldn't want to move every two years. More power to those that don't mind that.blue

14. 
    Mr.T | Jan 26, 2002 03:01pm | #18

    *Isn't spec short for special?as in special Education; what you need if you think you are going to make money of a house you dont have a buyer for! sorry couldn't ressist that one, the caffiene is coursing through my viens and my mind is as sharp as it gets these days.T

15. 
    mike_westerfield | Jan 27, 2002 07:43am | #19

    *AJ, we are in a suburb of Kansas City, and the spec market is great. As for not building a house without a buyer, Ive lost alot of potential buyers because the house was too far from completion. Mike