Building spec homes...

[Kroke]

I've got a couple of investors interested in doing a spec w/ me here locally. I wanted to know if there is any good reading material on this subject. (Ins & outs, etc). Common misteaks, overlooks, etc...

Anyone have a suggestion? thanks!

[patagoniadave]

Anyone have a suggestion? thanks!

Be careful with the land selection, a well placed underground boulder, or chunk of ledge will eat any potential profit you hope to get. Only 100 grand?

[GS Fulton]

I don't know of good reading material offhand but have worked on quite a few specs for builders. The biggest problems I've seen have related to financing and too much time elapsing between funding and sale. I have seen a tendency for builders to not want much detail because they figure they will work it out themselves and that doesn't always work so well. I think a very important issue has to be the quality and reliability of your investing partners. Are they going to give you a free hand? Who makes the decisions? They're not going to bug out halfway through? Just some thoughts.

George F

[bclarch]

I agree w/ George. Another common problem is ignoring "soft" costs as opposed to the "hard" costs (site improvement & construction costs). Soft costs can add up quickly. These include, but are not limited to, consultants fees (surveyor, civil engineer, structural engineer, etc.), environmental testing, soil borings, legal fees, time expended on municipal approvals, insurance, performance bonds, temporary utility costs, development fees levied by municipalities, etc.. Find a book that thoroughly covers all the bases then make a spreadsheet and run the numbers before you get too far down the road to turn back. Not trying to scare you off, just trying to keep you from driving off a pier because you were only looking five feet in front of the car. Keep looking down the road and you increase your chances of surviving.

[gregcashen]

Go No/Go (Third Edition)
by Mark W. Noe

This book will walk you through the process of determining if a project is financially viable.

I know a lot of contractors who do spec homes. Most do very well at it because they have done it a long time. One has made millions off of 300k to 800k projects, but he lost his *** on one 1.6MM project cause he didn't understand the market. Still hasn't sold it almost 2 years later :(

Greg

[J-G]

Greg,

Have you actually read the Go/No go book? I went to Amazon following your recomendation and found a page full of one star reviews?

[adegnan]

Look on the Journal of Light Construction website... www.jlconline.com. I did a search spec homes (http://www.jlconline.com/cgi-bin/jlconline.storefront/3ff84fc7004049a2271b401e1d290629/UserTemplate/44) and got several articles, the April 2002 article here (http://www.jlconline.com/cgi-bin/jlconline.storefront/3ff84fc7004049a2271b401e1d290629/Product/View/0204stri) would be worthwhile the $3.00 download fee for you.

We've never built spec, but as a design/build contractor we've always had plenty of work, and we started out as builders and I turned us into design/build so we worked into the market from the other direction that you are going.

A material salesman that I know builds one spec house a year using his business contacts and he built a very nice one in a neighborhood where I built 3, and it hasn't sold yet. It has a couple of flaws-- one bad house across the street, a 3-car garage that needs to be 2' larger to actually funcation as a 3-car, and bedrooms that are a little small. He took a long time to build it (problems with a couple subs) and he is sitting on it a year later yet. Otherwise, he told me he usually makes $30-$60k per year on the one spec that he builds. (I wish I made that much on the custom homes I do.) But he builds with cheap windows that he sells (weathershield) among other differences.

The number one rule i think is be prepared to sell your own house if you can sell it and move into the spec house-- if one isnt' selling, sell the other!

HTH.

[gregcashen]

I have read portions of the go/no go book and it is definitely not something one should buy from Amazon, as it will seem sophmoric and disjointed upon arrival. I had browsed it in the bookstore and knew what to expect...it is essentially the class notes for a series of classes put together by a real estate developer in Walnut Creek, CA. It is not a polished, well laid out book. It literally looks like a bunch of xeroxed sheets if class notes. It is, however, chock full of useful information. It is also only $27.95. I got it on half.com a couple years ago. here is a link (http://half.ebay.com/search/search.jsp?product=books&keyword=Go/No+Go+Mark+Noe&srchType=adv&nthTime=1) to a copy of it if anyone is still interested for only $19.

The best books I have seen on this subject are usually over $100, and since I am not in the development business, it was more for introduction to some of the topics and concerns that I should think about were I involved in development.

Be prepared to sit with a pencil and work through some of the numbers to understand what he is talking about if you get this book. I definitely thought it was worth the ~$20 I paid for it.

[J-G]

Thanks for the reply. I recently bought some more thorough books on development, but I did think it might be work getting for the information (the reviews mock it as a book, but do mention that it has checklists, notes, and forms). I am researching development at the moment, and it is a direction that I am heading in. If you have any books that you highly recommend please do recommend them.

For those who are also interested in the subject I recently bought "Building Spec Homes Profitably," by Kenneth V. Johnson, (it is a little dated), and "Construction Funding: The Process of Real Estate Development, Appraisal, and Finance," By Nathan S. Collier. The book by Collier is very informative IMHO.