First, let’s review terms, “spec” is short for speculation. Builders purchase tracks of land where they build residential homes for sale. In some instances, the contractors build homes without a purchaser which is then called a “spec home.” Spec homes in the current environment have been increasing in recent months. In May of 2015, construction spending reached an annual rate of $1.036 trillion, up 8.2% from 2014, as reported by the Census Bureau. The new family construction has an astonishing growth rate of 11.2% for the same period.
The first quarter of 2015 saw all single-family home construction up 80%. Most of these homes that were built were “for sale” which shows that small and large spec builders were building spec homes. From the last quarter of 2014, the spec home building was up 68.8%. Although caution has been expressed since the last time that these numbers were this high was the first quarter of 2006. Due to the economic bust in 2006, funding for construction projects mostly dried up. So, builders turned to hard money and Private Money Lenders. Hard Money Loan in Arizona rose from almost 0% to 28%.
Banks mostly focus on large developments and custom home building. Total Construction loans in Arizona have reached $77 million. Custom home loans reached $61 million. Hard Money Loan in Arizona have a lot of room to grow charging rates from 9% to 12% for spec loans for 12-month terms. As an investor, you may want to look at a private placement for single projects.
A builder may finance his building with a combination of his own money and funds from Private Money Lenders. In this case, the investor will only make between 6% to 7% monthly and a share of the profit when the home is sold. If you are new to building spec homes, you will want to team up with an experienced builder with a track record on spec homes. This will assure that you will qualify for funding of your project. In this case, Private Money Lenders may want to make sure that you, as the builder, have 25% of the cost in the project, otherwise known as “skin in the game.” After all, those that are invested in their own projects are more apt to work hard to ensure success.
If this sounds interesting to you as an investor, but you would like to go it alone, you will need to build a network, so people know who you are and that you are seeking to invest. Once you find a project, you will need an attorney to draw up an agreement spelling out the details of the investment, costs and risks. A typical deal involves the use free funds or IRA funds. Interest that is charged may be 8% if you can wait until the property sells or 6% if you want payment monthly. If you invest your funds from the IRA and the house sells, then the title company cuts a check right back to your IRA. Whether a builder or investor, now appears to be the time to make your move into real estate.
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis Dahlberg Broker/RI/CEO
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.