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To Spec or Not to Spec?

Wednesday, November 13, 2024

To Spec or Not to Spec?

In the world of construction, investing your own money in the Speculative Home market can be a difficult decision. The anxiety of watching your investment sit as interest payments and other bills pile up can make the most hardworking builder a little queasy. Here are a few simple rules to help ease your mind and put you on track for a successful Spec House investment.

Know Your Market
If you have been in the business for a while or even active in your community you have access to many real estate professionals who can share the market demographics that can help you with your decision. Average house price, size of house, style of house, and average duration of sale are all feedback metrics that can help decide what type of house to build and in what area or subdivision. They can be extremely helpful, and they want to list your property.

Who Is Your Target Buyer?
Every community has its own population makeup. In fact, it can even be drastically different from one side of town to another. So, knowing your potential target buyer is essential in planning for your spec projects. An area with younger tech-savvy professionals is going to have a drastically different need list than that of a retired couple. Knowing and adding more smart house applications with your appliances and lighting packages may be the difference between closing that sale and having that project sit.

Where Do I Build?
Where you build in a community can be as important as what you build. What is the school district like? How far away am I from the main hubs for shopping (grocery, department, big box, etc.)? How far am I from the library, community center, and workout establishments? Convenience and instant gratification have become more prevalent in our society. People value their time, so having quicker access to the daily essentials can be quite appealing.

What Style House Do I Build?
Open concept, modern, contemporary, craftsman, etc. Every contractor has their own style and unique pieces they like to put in their homes. Remember this is an investment, not your future home. Getting consultation on what is selling is more important than what your team and you like to build. Utilizing real estate or interior design professionals can help point you to what current buyers are looking for in their potential new home.

What Size House Do I Build?
Once you know where you want to build and the style of house you want to build, the next question is how big. Obviously, every builder needs to work within his means, but putting the right size house with the desirable options in the right development is essential. Putting a 10,000-square-foot house with 6 bedrooms and 6 bathrooms at a list price of $2 million in a development that averages 1,500 square feet with 3 bedrooms and 3 bathrooms with an average list price of $450,000 might not work out very well. Build within the average parameters of the development.

Know Your Budget & Stick To It
We have all seen projects spiral out of control with little changes here and there. Pretty soon you added $75,000 to your project and you’re upside down. Know where you are going to upgrade at the beginning so you can factor that in (such as cabinets, tile surrounds, plumbing, fixtures, etc.) If you have a range on an item like a well or septic, factor in the worst-case scenario to ensure you’re not blindsided in the end. Talk to your sub-contractors about potential discounts on your projects. They may have one coming up where you can return the favor. It doesn’t hurt to ask.

Pricing
Having worked with your real estate agent throughout the process, you should have a pretty good idea of what your listing price will be. They can easily work within the financial parameters you are looking for to move your property. Come up with a strategic price that helps you move your property on the timeline you are looking for.

Finally, Open Houses
Strategically marketing and showing your property can be the difference between a quick sale and a home sitting on the market. Have your property appropriately staged so potential buyers can envision themselves living there. Work with your Real Estate Agent to come up with a schedule that works. Discuss the details of the marketing strategy, How often will you have open houses? What time of day? How will your agent drive interest? (Social media, website, print advertisement, agents open house, etc). Remember, it’s a numbers game. The more people that view your property, the better chance of your buyer.

Learn more about spec home building & learn how to speed up your construction time with penalization here.