Many first-time spec builders are tempted to, well speculate. They might buy a piece of land in the middle of the desert hoping one day to build a house there. They might plan to construct a postmodern citadel, with floor to ceiling windows, in the middle of a working-class neighborhood.
Worse they might continue to speculate well into their project, deciding against a particular set of finishes, or deciding to shift a window over three-quarters of an inch because they prefer a slightly different view.
When it comes to building spec homes, you can’t afford to speculate this way.
• Buy Undeveloped land- You might finance the purchase of an undeveloped patch of wilderness. Spending hundreds of thousands of dollars expecting the city to come through and lay the groundwork for roads and utilities. But this might never happen, so what you’ll end up with is a useless patch of dirt and a loan you can’t pay back.
• Build Extravagant Homes-You might consider an area up and coming, and given rising home prices you might use financing to construct an extravagant home to appeal to these stylish new buyers. But if your home is listed well beyond the average price for homes in the area, the house won’t sell. The only ones moving into your home will be spiders, who aren’t going to pay back your loan.
• Changing plans- Spec financing is given out in draws; you only get so much money each month. If you spend additional funds one month to make changes, you won’t have enough money the next month to keep work going. What you’ll end up with is a half-finished home, which you can’t sell and again a loan that you can’t pay back.
1. Find a developed parcel of land- The land you purchase needs to be connected to electricity, plumbing and road networks. Only finance the purchase of developed land. Don’t waste your money buying acres of wilderness.
2. Plan your project based on market realities- Keep your plans in line with homes nearby, because whatever features you add need to be in line with homes in the area. After your plans are in place hook up with realtors, do extensive online searches about the value of homes close to your chosen lot and find out how quickly homes in the area are selling. This data will give you a sense of whether your finished home will pay back your initial loan and how quickly you’ll be able to pay it back.
3. Develop a detailed plan and stick to it- Establish a specific schedule for how work will proceed on your project and don’t change your plans halfway through.
Following these tips will prevent you from spending thousands on useless dirt, building a home that won’t sell and from running out of money in the middle of your project.
Make a plan in line with the realities of the market, and stick to that plan no matter what, because, if you want to succeed in the spec business, you need to be realistic and decisive.
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.