Let's Build a Spec House!

[Get Right]

Update and Question for you!

Update: Just closed on the first lot woohoo! I like to think I bought this one "right". It's really important to get the land at the right cost. If you don't it eats a really big chunk of your profit. I would rather wait (or not build) than to pay too much for a lot. I leave overpriced lots for people to build their personal houses on (they don't need to profit).

Question for you! - Would you rather me leave this progress thread on the outside and keep some details private?......or....move it to the INSIDERS and spill all the beans (show you the numbers)? Would love input on this from @MJ DeMarco @AllenCrawley @Vigilante @Andy Black

 

[MKHB]

Be cautious, you will garner a lot of attention now that the the low lying fruit of easy fix and flips have evaporated (in good markets). Even the big flipping sites are adding more spec content.

However, you are already way ahead of the game with your experience.

The progress threads on the other sites are mostly by novices; they are surprised by issues like public notice, impact fees, SWPP issues, tree saves, erosion, lot hydrology, all the things we turn to guys like you (architects) on.

This is gonna be fun to watch...way to jump right in @Get Right.

 

[Pete799p]

This is the part where most investors would write a heated emotional post about how they hate contractors. They would feel better and nothing would get done. Congrats on the progress, I am sure you will do well.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[4x4ord]

Dang! I am trying to do 1 a month, guess I better up my game!

Honestly, there are some major advantages to running multiples of houses. The biggest is keeping contractors on your site. They are like herding cats once they go to someone else's job.

A good rhythm for me was starting 2 foundations a week. At that pace I could pretty much role my contractors from one house to the next.

Good luck! It sounds like you are off to a great start. Don't hesitate to shoot me a PM if there's a question I might have an answer for.

 

[Get Right]

Thought you might want to see the view from lot #2. Just got it cleared yesterday. 5 hours of cutting and chipping, lots of fun.

 

[Get Right]

Please don't take this the wrong way, but if you keep doing things the way you have been, there is no way you'll be successful in removing TIME from the equation. Some things I've noticed:

Ha! I don't take constructive criticism personally. Thanks for the input!

I have a general contractor that is tasked with most of the items you mention. He's not moving at an acceptable pace (agreed). I'm trying to motivate him more effectively. It's not easy to break "beach fever" as we call it.

My projects are 100% legitimate (I'm an Architect). Everybody is licensed, insured, umbrella'd, and W-9'd. I also know the vast majority of them.

 

[Premixedd]

Still making progress! Here is a shot of house #1:
The decking should be finished today. I'd like to be further along but making steady steps in the right direction. I make it a goal to advance the project every single day.

House #2 and #3 are in permitting. Ideally they will begin in 1-2 weeks.

From the sales side - things are looking good. My realtor thinks house #2 will get a deposit as soon as the pilings are installed. House #3 isn't listed yet (on purpose). My goal is to sell it without the realtor. I'm getting numerous inquiries (and several people stopping at the job site to talk).

All this activity is also getting requests for me to build some custom homes. I'm resisting right now because it violates "Time". This would be easy money and the lure is hard to resist...but I'm sticking with my fastlane strategy. I struggle with this part of the process most.

As someone who grew up building custom homes for 8+ years, I can say that this thread genuinely intrigues me! I have built quite a few spec homes for clients who pay gobs more for just the "unique" design alone. No extra square footage, no additional amenities or benefits, just for the sole purpose of standing out amongst all the cookie cutter houses. I've been considering going this route once I have a little more capital to run with in my fast lane ventures.

I admire your doings and will be following this thread! Good luck!

 

[Get Right]

Good Post, glad you are overcoming challenges. Development can be a prick of an industry but seems like you are building a good product, getting the sales and seeking council from more knowledgable individuals. I know you said you are looking at posting numbers but what sort of return on costs are you looking at (net profit / total costs excl tax)? Always interesting to me to see how other countries and states stack up in terms of development.

Ha, right! Frankly the only real problems I have are when I violate one of my "rules". Rules such as selling before its finished etc.

When I did my initial estimates I was looking for about a 5% profit per house. So for a $500k house it would be around $25k. I've been creative however and that number will be closer to 15% or $75k per house.

If you look at the US large builders they end up with about $15k per house profit. I have seen their numbers and it only makes sense with huge volume.

 

[Blair]

Are you limiting yourself? Probably but at the same time only limiting yourself in the form of maybe more sales / builds, if you do all of the above you will likely be time poor, more stressed etc. My personal opinion would be to scale through larger projects, shifting from stand alone housing to multi unit complex changed my business overnight. Turn over far more money at a higher margin but still have similar amounts of work per project (one permit/consent, funding agreement, set of tendering to do, set of accounts etc). However your location / market / council will largely determine if the above is possible. Also have sold 4 homes this year via facebook (never would have thought in Jan this would have happened) so sometimes the stuff that does seem a bit pointless does pay off. Just my 2 cents on your question anyway.

 

[Get Right]

I thought that in a previous post, you indicated that you purchased Lot #2 in December 2015?

Sorry, the house number doesn't correspond to the lot number. In this case, "house #2" was built on "lot #3" in this thread. Whenever I see a land deal I buy it and develop when the time is right. This lot was purchased in January of 2016.

How much labor did you have to put in? Did you factor that in as a cost?

I put a decent amount of labor in on purpose (maybe 20 hours a week). I paid myself the same amount as it would have cost me. Those numbers are included in the "cost of construction". So technically I "made" more than just the profit. I mainly did this to educate myself and have already started limiting my time on current projects.

What areas do you plan to improve on to get your costs down? I am surprised your lot cost is so low.

Improvements:
1. I applied for a contractor license to save the $25k fee I am currently paying per job.
2. I overpaid a few subs which will save $10k
3. Better deal on materials will save $6k
4. I hired an employee to self perform some work saving around $9k
5. I priced house #2 too low. I lost an easy $20k+ there
6. I am going to try to sell the next one myself which could theoretically save $30k (but might not work).

Lot costs - Yes, I bought those lots at the perfect time. I won't have that advantage when I run out (2 left). I expect to pay about $60k for the next round of lots.

 

[amp0193]

With all due respect, your advice in this thread is nothing but negative. I find it hard to believe your "real estate coaching" will be successful if you continue to offer your cynicism with no constructive advice. I politely ask that you refrain from posting on this thread anymore.

What was negative about that? I thought it was very constructive.

His post was skeptical as what you're saying didn't gel with his previous experience. I think calling it cynical is a stretch though.


I'd also be curious to how you handled the taxes + insurance and how that played into the employee cost as well, and if it was actually cheaper after taking this into account.

 

[Get Right]

What/where would you advise I can learn more about how to go about this particular build model?

This is a hard one. I've worked in this industry for 20 years so my only suggestion would be to hang around as many developers/real estate agents/contractor types as you can.

What other skilled person might I need to find in my network?

Picking your general contractor is going to be the single biggest decision you will make. I would put 90% of my time in this.

Are your lots/plats ideally the same size lots to minimize the amount of redesign/scale?

Absolutely.

And here is a bonus picture from one of my new jobs. Three stories on this one!

 

[Get Right]

Just finished reading this progress thread- awesome stuff @Get Right! Might have inspired me to start my own progress thread on real estate...

Please do! I love real estate and the forum could use a few more RE threads.

 

[Get Right]

good update, enjoy watching your progress. Do you let your clients make changes? I presell everything and lock down the specification. When you buy an iphone you cant make changes so why should housing be any different. Frees up massive time, makes job management easier and means all the contractors get into a good pattern from job to job.

Thanks! I don't let clients make changes on the spec houses until it is sold and paid in full. After that, I happily work on them for a fee.

My pre-sales are a little harder. I let them make minor changes that don't affect the price or quality. If they insist, I make them pay cash in advance.

My custom builds are the tough ones. I'm pretty much married to the client so I charge my highest rate and bite my tongue alot! The profit is great so it frees up cash for my main business building specs.

You are absolutely correct about time savings and management. For me, this is the fastlane portion of the equation. My crew needs no input from me on our "standard" model(s).

 

[Get Right]

Wow a 6% increase! How would you go about hitting 20% though?

Baby steps. I plan to keep using my data to find "lost" money through efficiency, speed etc. That coupled with increasing prices due to demand.

For instance, I've shaved about 3 months off my build time. At the same time I've increased the price on every house. That spread will help me get closer....but 20% is a long way off.

 

[Bellini]

@Get Right ~ This sounds great. I really like your ideas.

Sounds like you've put a lot of thought into it.

So Florida is growing faster in population than the available housing?

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Get Right]

I'm curious to hear what would differentiate you from other modular home solutions where you can get more customization.

Thanks Latestarter - I'm doing quite a few things to differentiate. The main play though is scarcity. There just isn't any inventory to compete with. I know that will change but by then I should own all the lots

Other plays are providing the customer lots of value they can't typically get - like Architect designed production houses, designer series equipment (due to bulk purchases), and also trying to set up a financing solution for buyers.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Get Right]

Will a mortgage not get you a lower interest rate than your friends and family loans? Seeing as mortgage rates for 20 years are now at 2,3%.

Yes, but not worth it because:

Notice I never mention getting a mortgage or securing the lot on the LOC's. These remove CONTROL and speed from your deal, not to mention additional closing costs.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Get Right]

Whats the latest update? Love seeing the updates as looks as though construction methods are slightly different to that of my home country.

Busier than ever and having a blast! Currently I have 6 under construction with 2 more in the works. All of these houses are close to the ocean and require pilings for foundations. Basically when the big waves come they wash under the house as opposed to washing the whole house away.

Is it normal for houses there to take so long? Up here a halfway decent spec home can be done in 3 months or so, even of the nicer, more luxury-ended ones.

In my area and this style, yes. We are on track for 8 months per house. We have a severe shortage of framers, always been a problem. I've looked into hiring my own team of framers but then it becomes a job and not very "fastlane".

That said, the OP seems to be doing a lot of things sub optimally and is taking a lot longer than he should be to get to where he is. He may have gotten in over his head with multiple projects simultaneously...

O, come on man why the hatin'?

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Get Right]

Hey Guys! I have a question and I need your help!

Background - So the spec home business is doing pretty well. I have plenty of houses in the pipeline mixed with a few custom builds. Everything is working and scaling nicely. I've done so without any marketing (I don't even have a webpage), a real "office" (I work out of my house), a real business presence (no advertised phone number/address/business cards), a real vehicle (I still drive my old truck), etc. Heck, I don't even have a marketable business name and not many people even know what I am doing. Without any of this I think I can hit my original $ goal in just a few years.

So on to my question - Am I limiting myself by not doing the above things? Am I missing the opportunity to absolutely smash this business out of the park? Basically, am I selling myself short?

 

[Get Right]

I have a question -- where do you live now?

Thanks for all the ideas @WJK ! I've owned my current single family house for 1.5 years now. The plan was to flip it at year #2. This will be my third flip to capitalize on the tax loophole. I planned on buying another single family but the multi-unit idea is intriguing. I have a piece of land zoned for multi-family that might work...now to convince the family!

His post was skeptical as what you're saying didn't gel with his previous experience. I think calling it cynical is a stretch though.

That's a fair observation. If you read the last five pages I've been told I'm "over my head", building sub-optimally, doing everything wrong...and it gets old. I spent the last 4 years getting rid of negative people in my life. I'd prefer not to have negativity creep in my forum-life as well.

I'll tag @JScott here and welcome him back (if he chooses) but the skepticism and/or negativity can't be in every post.

I'd also be curious to how you handled the taxes + insurance and how that played into the employee cost as well, and if it was actually cheaper after taking this into account.

So there are a few things at play here. I am building more now so I needed a part time project manager/ part time laborer. I found a person that is very good at both. I will transition him out of labor as we grow. At the same time, we have a huge shortage of painters and trim carpenters in my area. IF you can find one, they are twice as expensive as 2 years ago. So with all the taxes, insurance etc. I'm saving close to $9k per job.

His plan sounds to me like jumping off of a cliff.

I think I did a good job mitigating risk. The market research, the skill-sets, back up plans etc. What scares you?

 

[StompingAcorns]

When I got back I pushed hard to get another house on the market. It was close already but needed a final push. We listed it Saturday and it sold in 12 hours! Talk about catering to a raving MARKET

Congratulations!!!! Your presentation was awesome, and it was great getting to know you and the "Get Right" story as well. Loved your approach of analyzing the market first - what a concept, yeah? lol You've worked so hard - well done!! And so many other good things coming from this. I'm very happy for you.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Connor]

Just finished reading this progress thread- awesome stuff @Get Right! Might have inspired me to start my own progress thread on real estate...

 

[amp0193]

I'm pulling this hedge off by pre-selling a few builds (something I prefer not to do).

Love the progress! Nice to see the summit plan being fulfilled, and then some!


Pre-orders are a fickle bitch.

They're great for everyone when everything goes as planned (or mostly so).

It's uncomfortable, stressful, and disappointing for everyone when things don't go so well. (Dealing with this now).

It helps to manage the expectations with longer timelines, with lots of wiggle room. Some margin for error.


As bad as it can be when things don't go right... I'd still rather have sales and no inventory, than inventory and no sales.

 

[Johnny Le]

Happy New Year sir! Bumping for an update!!

I just broke ground on my first spec!

 

[LateStarter]

Yes, margins are increasing. My first house was 7%, the last one was 13%. I'm still trying to hit that magic 20% but it is hard.

I still work 60+ hours but it's fun so I don't mind for now. I hired my first PM when I started missing things I normally catch.

Owning your own equipment is a big money saver/maker for me.

I made a template based off a previous job. I tweak it each project and that becomes the new template.

I stumbled back on this post after reading it several years ago. I was at the Summit when you spoke about this business and although I was investing in real estate at the time, I never thought this would be a part of my future plans. As it turns out, it was.

My wife and I started with land prospecting and ended up becoming home builders. We took on a partner (50/50) who had construction expertise and we financed the deals. I think our market conditions are/were very different compared to what you're experiencing.

The handful of homes we've built have been estate-style homes on 1ac+ lots. Our margins have consistently been at or above 20% even through the trials of the Covid supply chain issues. Our most recent build is at 22% and we're disappointed with that. Having said that, we are in a 50/50 partnership so my wife and I take home 10%+. We shouldn't complain though, it's not bad money considering it's largely passive for us outside of the funding stresses.

Since we started, we've intentionally kept our volume low as we've learned the business. This was to mitigate the downside risk and, frankly, because it's such a cash intensive business and we own a number of rental properties already, we were somewhat over leveraged in our own minds.

Right now our homes are selling for $1.2M+ and that's in a depressed market. When the market rebounds we hope to be closer to the $1.4 - 1.6M range. We have one vacant lot left to build on, then we're out of inventory. With interest rates on the rise and land prices sky rocketing, we need to figure out how we can grow this business more effectively and increase our margins. I'm considering exploring higher density starter homes to help maximize the lot profitability and leverage economies of scale. It's not as sexy as estate homes, but it's a needed segment in the market. I'm not (yet) convinced it can be as profitable, but I have more research to do.

I'm also wondering if starting/buying other existing businesses, like HVAC and plumbing, could make sense to become more vertically integrated.

Thanks for all the unexpected and transparent inspiration along the way!

 

[Get Right]

• Are you talking scattered lots or doing a take down deal with a master developer?

• Would you draw separate plans for each or have 2 or 3 models?

• Would you allow pre-finish closings and owner's ability to make cosmetic changes alterations, carpet/cabinets/colors?

• Can you still get construction to perm financing like we did in early 2000's, to transfer the financing burden once sold and buyer is approved?

• Is this going to be a"Licensed Architect designs custom homes at production home prices" economics type of story, or will it be based on the the unique locations you source (lots) and appeal to those who don't want cookie cutter homes and are willing to pay more?

Thanks MK

• Scattered lots on purpose. I hate repetition of house designs (next to each other).
• Actually just 1 model but you won't be able to see 1 house from the next
• Absolutely pre-finish closing but with a limited list of customer changes
• Yes sir, it removes some element of control and more liability but possible
• Both

 

[Get Right]

@Get Right ~ This sounds great. I really like your ideas.

Sounds like you've put a lot of thought into it.

So Florida is growing faster in population than the available housing?

Thanks Bellini - Our specific area is growing way faster than housing. I am trying to respond to the market needs/wants. Normally I would steer away from specs but the time is right (IMHO). I think the window is short however (3-4 years).

 

[MKHB]

Thanks MK

• Scattered lots on purpose. I hate repetition of house designs (next to each other).
• Actually just 1 model but you won't be able to see 1 house from the next
• Absolutely pre-finish closing but with a limited list of customer changes
• Yes sir, it removes some element of control and more liability but possible
• Both

This seems like a great plan and you being an Architect you have the technical part more than covered.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[MarkNNelson]

With my new found freedom...

Be careful. Knowing you, the process you're about to go through will generate a ton of new ideas for needs to fill in the SFR-builder space, and then you'll really lose your man-of-leisure status.