Spec Home Construction...
Has anyone here built a home? How did it go and would you suggest it to another person? What kind of home and what kind of market.? How did you come out financially?
I'm trying to decide if this would be a good way to get into RE investing and would greatly appreciate any info/dialog.
Thank you.
Unless you are general contractor, you aren't going to make any money building a spec home. Even then, sometimes those guys just break even.
To profit in any business, you (personally) have to add value somewhere in the food chain.
You can have a custom builder build you a spec house out of his portfolio of plans for a certain price. Anyone else can have that house built for the same price.
You can have an architect draw up a custom design and find a builder to build it. Since the builder has never built that plan before, ecpect to pay 20% more than it will be worth when it's finished.
The only home building process that goes relatively smoothly are tract homes where large builders like Pulte or SubStandard Pacific build the same plans over and over. They get pretty efficient with materials and labor and can offer some pretty amazing stuff at really affordable prices. That's why most people go with tract.
Outside of that you are looking at custom. Nothing about a custom home goes smoothly, on time or within budget. If there is a smidgen of profit available when all is said and done, it will get eaten up by brokers and bankers when you sell.
If you come up with any good ideas on how an investor can profit from having spec homes built let me know....
I am asking from a general contractor's perspective.
From what I've read, they usually build in a nice percentage for themselves and I am thinking that acting as your own gen. contractor will lead to GREATLY improved numbers.
Anyone's thoughts are appreciated...
Would you hire a general contractor with no experience to build you a spec home?
If the answer is no, then why would you hire yourself?
Would I hire a general contractor with no experience to build me a home? Of course not.
Would I pay myself 5-10-15% to try it someday? Yes.
Two separate questions.
Anyone with building experience...?
My partner (in the rental business) is also a general contractor. He builds spec homes from time to time but mainly installs all millwork for a large builder in his area.
He claims the competition is too fierce for the independant guy to build a spec and turn a profit. At least in his area, the independant guy pays twice as much for the land compared to the big builders (they buy hundreds of acres at a time).
Now, he just builds himself a new home every two years and takes advantage of the residence exclusion tax.
I assume it's that way around here (Atlanta) too, but, there might be room in smaller communities. My hometown is about an hour from here and full of Hispanics looking for homes. That might be a nice place to start...
It seems to me, though, if you can cut out the gen. contractor and the agent (HOPEFULLY), then you've already saved yourself a bundle and then you're working with a brand new house which will keep maintenance/repair low.
Obviously the numbers have to work but does this make sense as a general idea?
It only makes sense if you know what you're doing. If you've never built a house, you're NOT going to save that money, you're going to squander it in not knowing what you're doing. Building a house isn't the same as building a deck, or a storage building. You have to schedule sub's, price everything, deal with vendors, schedule material deliveries, (a MAJOR deal, because if a subcontractor schedules you in, shows up at your site, there's no material, he WALKS, and you go back on the end of his list), deal with permitting, a thousand other details. ALL it takes is for a couple of them to get messed up, and you start bleeding money. BADLY. In THEORY it sounds good, and I'm sure there's books out there that tell you how easy it is, but it's just not that easy to do.
Do you generally flip or rent? What kind of margins do you see when you build and flip?
I would not count on saving a bundle. First off, all of these subs will do work for the big builders much cheaper than they will do work for you. Why? Because of volume. And, in some cases, the big builders might go as far as dictating what they will pay for such services...and the subs still do the work because they know they will always have work with this big builder.
It is a similar situation to Wal-Mart verses a ma and pa retail store. Why does Wal-Mart get their product so cheap?...because Wal-Mart tells the supplier what they will pay for it and the supplier must have Wal-Mart as a customer to survive (for certian products Wal-Mart has an 80% market share).
What you might want to consider is to differentiate your spec house from what the big builders are doing. This can be risky but has the potential for being profitable. Maybe it is a higher end home...maybe it is a spec house with 4 garages instead or 3, etc...etc... Find a niche that the potential customer wants that the big builders are not supplying and you will have a chance at being profitable.
Fishbowl if you want some perspective on what somebody with no experience will likely face, look at the builder's network or companies similar such as U-built it. These are companies that help a homeowner be his own GC. The numbers I have seen are only 5-10% of these homeowners realize a savings being their own GC. 40-50% end up just about even, and a whopping 30-40% end up paying more than they would have if they had hired a GC in the first place!
Not saying build spec won't make you money, but unless you are a contractor already the odds are stacked way against you.
What jam has posted rings true to everything I have heard from contractors and homeowner GCs after the fact.
Building low end housing is even harder to make money on, hence the reason there is a shortage, the numbers don't work very well.
Last time I went to the GaREIA meeting, there was some guy there that worked for a builder that claimed he could build a house for $35.00 a foot, on your lot. I NEVER saw any of their work, and didn't really follow up on it, 'cause it just didn't fit into what I was doing at the time, but I'll see if I can dig up their number for you, if you'd like. Keep in mind, you could only get away with building a house such as this in the 'burbs here around Atlanta. Don't know where you are, and they may be great for you....
I am planning to build a house and will hire a builder. Is there any form somewhere that I can use to compare bids, prices, quality, timeline, etc. ?
The reason people go with "tract homes" is because they do not know better. It has nothing to do with them keeping cost down by being efficient.
They keep cost down by being "cheap" in quality and quantity. They buy large tracts of land, subdivide it into the smallest lots that zoning allows then charge top rate prices for the land and put up the cheapest quality home allowed. They are also often able to get just about anyone qualified with their own financing packages available.
You talk to any building inspector privately about tract built homes and quality, they will laugh at you.
Comparing apples to apples, no tract builder can compete with the small custom builder.......nor do they attempt to. They do what Henry Ford did.......they mass produce.
The smaller savy builder knows how to build custom a home which will have instant equity when all is said and done.
Historically tract built neighborhoods do not appreciate compared to the private developments offering various style homes and builders to chose from.
I've witnessed this first hand in Ohio, Indiana, Virginia and NC.
In answering your question about doing a spec home and making money off of it with or without a GC.
As a GC I do both custom and spec..............my profit on the spec is dictated by several factors such as the current local market, location, other builders in the area etc. There have been times I have done very well on spec building and there are times (such as now) where you can sit on a spec for awhile and watch your profit get eatten up by interest charges as well as other problems.........such as a few builders running out of money then letting them go for what they have into them...............which is what has recently happened in one of the neighborhoods I am building in.
From an investor stand point this would be a great deal if you can find that stupid (correct adjective used) builder that didnt know what he was doing and is giving them away.
On custom homes, you can find a builder that can work with you on your budget - advise what size house to build - what areas you can do yourself (sweat equity) - which upgrades are worth it and which one are not............this is how the smaller GC out performs the tract builders.
Back to another point........ you got GC's out here that have lost their shirt on spec buiding........what do you think can happen to the person that has no knowledge of construction, no supplier or trade contacts etc?
Rehabbing and new construction are two different animals...............anyone can hire a handyman to fix a few things here and there and then flip a property.
Again, depending on your market and state law,.........if you want to attempt it then go ahead but I would advise against it.
NC_Yank
I am a General Contractor and have been for 14 years. I mostly worked in remodeling, additions and new construction siding(about 60 homes a year). I just finished building my own home.
I figured because I knew the business, knew the subs, knew the ins and outs, I had it made. It just doesnt work that way. Although I am happy with the over all job, and very happy with my instant equity, it comes with a price.
It is a VERY stressful project. It took me 9 months start to finish. I even personally knew everyone that worked on my house and I still too many holdups and cost over runs to mention.
Many misunderstandings, many problems along the way and sad to say one friendship(my electrician was a good friend of mine) that has been strained because of it.
I would strongly discourage you from trying to make this your business. especially with no experience. You can read all the books you want but its just not the same as the school of hard knocks. If you are still set on building a house, Hire a qualified GC and use your free time to find easier more creative ways to earn a living. Good luck
Fishbowl. I, too, have had the experience of building my own custom home. And as others have said it is a very stressful time consuming process. But it really depends on where you are building. I built the house in so. cal. and I would never build here again. The permit process alone took over a year. There are too many rules and regulations and fees. We spent about 3 months fighting with the county over how the layout of the driveway would be. It was riduculus. Thank god for the incredible price increases the last two years so I made a profit.
But I am now building in a small mountain town in Utah and it is the complete opposite. I did not need elaborate plans. There is no permit process. Just had to fill out one form. It has been easy.
Ive read everyones replys in regards to this post and I have to sa , that first off nothing worth doing is easy to begin with. If your looking for an easy way to make money then get a job with a regular paycheck, lol. Ive been self employed since 1997 doing real estate and went from mortgage financing, to rehabs and flips to new construction. And I have to agree that rehab and new construction is definately two different animals but if done both , and ive done rehab with condemned properties.
In saying that I have to say that I enjoy new construction better. My advice to you is to seriously build up your contacts, give a good GC and sit down and explain your ideas. i work with 2 builders and I build spec homes that are presold to home owners and investors and Im loving every minute of it. But for it to work, I sat down and wrote out a business plan just to get my thoughts, ideas and concerns on paper because thats how serious I was about it.
But to sum it all up, theres plenty of opportunity out there and many different ways that you can be successful in real estate, but the first thing you have to do is focus on one thing and work on our strengths and fix your weaknesses and youll be fine. good luck !!!