Iridium Development


How to Build a Spec House Part I

Screenshot 2023 10 09 at 7.47.37 AM

How to Build a Spec House Part I

Screenshot 2023 10 09 at 7.47.37 AM

Location Location Location

  Yes it is all about location, great schools are very important, a street that is not busy, walkable area, low crime neighborhood, everything you would care about when selecting a place to live for yourself. 

  Now here is what you might not know about selecting the property. Ideally you want a lot that will allow the house to sit slightly uphill from the street. Not on a mountain, just an upward crown an elevation difference of 2ft depending on lot size and house location. 

  Next you want an open lot or one that you can open up. Clear out brush and dying trees. If there is a tree worth saving make sure it is not dying by having an arborist look at it. 

  Triangle lots are tough and usually not worth the trouble, corner lots are the same. Corner lots are viewed as having two front yards and the setbacks from the street in front typically are the same for the side street greatly reducing your build footprint. 

  Neighbors, you definitely do not want to build a spec house near the neighborhood hoarder or front yard mechanic. No fence will hide what you see on your first and every approach to your new home. You also want to get along with your new neighbors when you purchase your property. 

  Price, this is mathematics not feelings. Before you start looking for property you need to know a few things first.

  • What price are you looking to sell your new house at?

  • What are the comps for the targeted market? Bedroom, Baths, house sft, lot size?

  • What is the cost you can build at per foot to deliver the same type home in that space?

  • How big is the market space and how many days on market to sell?

  • Then select the area you want to build based on the local comps. 

  New homes sell for more than older homes per house size, bedroom count, and land size. Waterviews and waterfront increase the sales price as do pools and other features.  Sometimes they are worth adding and sometimes not, the math will tell you. 

  Having completed your homework you can then decide on the price for the land. Your ceiling is set by the comps, you need to deduct the cost to build with the features the other comps have, then the land price, closing fees, and have enough profit to be worth the effort.  

Screenshot 2023 10 09 at 8.08.52 AM

House for Sale

  Trust the math, numbers do not lie. Be sure to include the build cost, land cost, closing costs to purchase, architect and permit fees, utility fees, insurance, taxes, finance fees, this has to be deducted from your selling number and net proceeds to be certain you will make a profit. When you sell you are responsible for paying all real estate closing fees title costs, and legal. This can be 7%-10%+ taken off the sale price depending on where you live.  

What is the targeted profit that you should seek after closing costs from your sale and real estate commission?

  That profit range is totally up to you but for the risk and cost of money, you should at the very least worst case scenario clear 25%+ per year over the cost.  If you are setting your goals for less than you should give your money to an investor who will provide more return with less risk and less work/stress for you. What if the timeline from purchase to sale takes longer than a year? That profit margin you calculate has to be higher than 25%+ per year. If D.O.M. in your area is 180 days that is 6 months of sitting waiting for a buyer. Your home has to be showcase condition 24/7. Lawn maintenance, house cleaning, touch up paint, are all the weekly expenses you must cover to keep your house in showroom condition.  

  Now you have your math homework complete and you are ready to select and bid on a property. You have your construction cost, and all of your costs associated with the complete build and sale of your new house. These are fixed numbers based on tangible items. The purchase price is the last variable and when you reach your ceiling and the seller cannot make it work, you have to walk away. So many times I hear from builders that they paid more than they intended because the location is worth it and when they finally sell it wasn’t worth it. 

  At the end of all your hard work and late nights staring at the ceiling trying to sleep, all of this stress has to be worth it or why do it? Do your math and stick to the numbers. 

More coming later on the other stages of building a spec house.

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