SPEC HOMES: IS BUILDING A SPEC HOUSE A GOOD INVESTMENT?
Homebuilding is on the rise and, as a Real Estate Investor or homebuyer, you may be thinking about whether investing in a spec home, that is, a custom home that is built to your specifications, is a good idea. There’s no doubt that buying a that’s already built and pre-owned is cheaper than building one from scratch. However, there are a few compelling reasons why building a custom home might be a good investment after all.
In this blog post, we’ll take a closer look at what spec homes are, and consider the question of whether to build one based on current market conditions. We’ll also discuss some of the pros and cons of investing in spec homes, as food for thought, should you be considering this path. So, if you’re thinking about becoming a spec home builder, or just curious about what they are, keep reading!
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WHAT ARE SPEC HOMES, AND WHAT ARE THE BENEFITS OF BUILDING ONE?
A spec home, short for speculative home, is a property built without a specific buyer in mind. Builders typically construct spec homes in areas where they think there will be high demand for new homes. When building spec homes, investors must move on two parallel paths, both deploying a strong sales force to sell buyers a concept of their soon-to-be dream home, and working with general contractors to quickly build homes that will be appealing as-is to future buyers. The name of the game with spec homes is to sell the home as quickly as possible after it is completed.
There are several benefits of building a spec home.
· First, it allows builders to capture home-buying momentum when the market is hot.
· Second, because spec homes are typically built in lots of ten or more, for instance, as a subdivision, it helps spread the risk among multiple buyers, which can be helpful if the market unexpectedly slows down.
· Third, it gives buyers choices when they are looking for a new home, and gives buyers the comfort of moving of moving into a newly-constructed neighborhood that appears custom-built for them.
· And finally, it can help keep prices down for the builder, through the economies of scale offered by buying materials in bulk.
HOW DO YOU KNOW IF BUILDING A SPEC HOME IS THE RIGHT DECISION FOR YOU AND YOUR FAMILY?
If you decide to work with a builder to build a spec home for you, it’s important to ask yourself a few questions.
First, do you have the time and inclination to be engaged in the construction process? While the builder will hire a general contractor and take on the heavy lifting of obtaining permits, meeting with inspectors and ensuring the property is built to code, you as the homebuyer will likely be called in any time there’s a change order. Change orders can be small such as changing bathroom fixtures, or large such as addressing a newly discovered environmental issue, or changing the layout of the house. Building a spec home is a big undertaking, and it will require your constant attention. If you’re not prepared to be intimately involved in the project, it’s probably not the right choice for you.
Second, do you have a realistic understanding of the costs involved? Building a spec home is notoriously expensive, in large part because of change orders and cost overruns, and there’s always the risk that you’ll end up being stuck with an unfinished project. Make sure you have deep pockets before taking on such a risky venture.
Finally, do you have a good grasp of the local market? If you’re building a forever-home that you will never leave, then the local market has little bearing or your design choices. But if you hope to one day sell the home, you’ll need to know what kind of homes are selling in your area, and at what price point, so that you build a spec home that will turn a profit down the road.
If you can answer all of these questions confidently, then building a spec home might just be the right decision for you and your family.
WHAT SHOULD YOU CONSIDER BEFORE STARTING CONSTRUCTION ON A SPEC HOME?
Building a spec home can be a great way to break into the construction or developer industry, or simply build your dream home. However, there are a few things you should consider before starting construction.
· First, you need to find a good location. The location will determine the type of home you can build and how much it will cost.
· Second, you need to choose the right floor plan. The floor plan will determine the size and layout of the home.
· Third, you need to select the right materials. The materials you use will determine the quality of the home and how long it will last.
· Finally, you need to get the proper permits. The permits will ensure that the home is safe and meets all building codes.
By considering these things before starting construction, you can ensure that your spec home is a success.
HOW DO YOU MARKET A SPEC HOME TO POTENTIAL BUYERS, AND WHAT ARE SOME COMMON MISTAKES PEOPLE MAKE WHEN SELLING THEM?
A spec home is a new construction home that is built without a contracted or even specific buyer in mind. Marketing a spec home can be tricky, as you need to appeal to a wide range of potential buyers. It’s important to stage the home in a way that makes it feel warm and inviting, as this will help potential buyers envision themselves living there. It’s also important to price the home competitively, as overpricing will likely turn buyers away.
Finally, it’s crucial to work with a real estate agent who has experience selling new construction homes, as they will be able to provide valuable insights and guidance throughout the process. Overall, marketing a spec home requires careful planning and consideration, but if done correctly, it can be a great way to attract buyers and sell your home quickly.
ARE THERE ANY RISKS ASSOCIATED WITH INVESTING IN A SPEC HOME, AND HOW CAN YOU MINIMIZE THEM?
When you purchase a spec home, you’re essentially investing in a property that has been built without you and your particular wants and needs in mind. Because the builder is hoping to sell the home quickly and for a profit, they may not be motivated to modify their design template and craft a home that meets your unique needs. As a result, it’s important to be aware of the potential risks associated with spec homes before making an offer.
One of the most common risks is that the home may not be completed on time. This can cause major delays and added expense if you’re forced to wait for the home to be finished before you can move in.
Additionally, there’s always the possibility that the home may have hidden defects that are only discovered after you’ve moved in. While it’s impossible to completely eliminate all risks when purchasing a spec home, working with an experienced real estate agent can help you minimize them. With their knowledge and expertise, they can help you find a quality spec home builder that meets your needs and budget.
