Let's Build a Spec House!

[Get Right]

I started about 9 homes per month.

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

 

[MKHB]

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.

Oh man... r u kidding me. What a place to work. Nice.

 

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[Blair]

As a spec home builder myself this is an interesting thread to watch! Keep it up

 

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[Get Right]

Does your contract with the GC lay out specific deadlines for deliverables? Does the contract call out penalties for missing those deadlines? That might help him get his butt in gear...

Unfortunately no. I haven't done LD on residential work before but....I bet it would get his attention.

 

[Blair]

Any update? How is the development tracking along?

 

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[Ikke]

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%.

 

[Blair]

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

 

[BrandonS85]

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.

 

[BrandonS85]

That wasn't meant to be an insult...I apologize...

My point is that you would have been better off building a single one of those properties start to finish and then using what you learned to fast-track the rest of them. You broke ground on the first one over 9 months ago -- I would have focused on getting that one built (and sold!) by now, and then you'd have experience start-to-finish on this kind of project and the next 4 or 5 would have gone very quickly.

As for framing, I highly recommend finding a local framing company that can do pre-built wall panels and trusses and then ship them to the site. The bulk of the work is done in a factory, so the quality tends to be higher and because you don't need framers to build the panels, it can generally get done quickly. Then, once the panels are built, the framing takes essentially no time.

Here's video from a recent build I did -- this is a 4000 sf house that was framed in 2.5 days:

Forgive me for dumb questions but...

If a homeowner came to you and wanted only framing, how much would you charge psf on a two story? Reason I ask is because I want to design my own house, which is to be only a large box that I want to finish inside. I've got resources for almost everything but foundations and framing are two things i don't have a good handle on. I've read so much about wall , roof and floor loading yet still don't understand it all especially when it comes to pricing.

 

[BrandonS85]

I'm an investor/developer, not a contractor, so this isn't something I would do for someone else...

That said, to give you an idea, for the house above (three stories, 4000 sf, 10' ceilings, higher-end materials for decking, etc), which was built in Maryland where the codes are pretty strict, we spent about $58K on the framing. That included all the steel beams, framing, sheathing, decking, etc. I think it was another $1200 or so for the house wrap.

Now, this framing job was completely turn-key -- I handed the plans to the framing company (Builders FirstSource, a big, national supplier and contracting vendor) and they took care of everything. Had I subbed it out to framing contractors, purchased the materials myself and done the oversight of the job, I probably could have taken it from $60K to $40K.

Again, this is Maryland. A similar build in Atlanta would have been about 20-30% less, just based on the market and the lower cost of materials. Those are the only two markets I build in, so I can't say what it would be in other markets, but Atlanta tends to be on the low side in terms of costs and Maryland tends to be a bit higher than average.

Now, this was a bit more complicated than framing just big a square box, so that certainly adds cost, as did the high ceilings, a higher-profile roof trusses and a very large/tall garage. But, it wasn't a complicated framing job, so the extra cost isn't significant. It boils down to the number of walls and the linear footage of those walls.

But, that should give you a basic idea...

Are there any good resources out there for learning to cost-cut by DIYing the networking/design and the like? I don't want to do much if any physically with the property, just figure a way to get the largest house imaginable for the cheapest price possible through networking. So far I've had great luck at getting material extremely under cost (At the moment I can do HVAC in some cases for 1/5th of the pricing of what my rental competitors are paying).

 

[Blair]

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.

 

[CycleGuy]

Your style choices are looking great man. Are those a quartz counter top? We went with a similar counter for our home recently. Your lighting is very similar to our choices as well. Please post some more pictures as you continue to build.

 

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[ljean]

I have considered spec building in the past but its hard to compete with the guys satisfied with 5% to 10% margins. That is just way too much headache and risk for that slim of a margin for me. It doesnt take much of a hiccup in the market, cost runover, or sale delay to burn through that.

 

[Blair]

I have considered spec building in the past but its hard to compete with the guys satisfied with 5% to 10% margins. That is just way too much headache and risk for that slim of a margin for me. It doesnt take much of a hiccup in the market, cost runover, or sale delay to burn through that.

This 100%, especially if operating with debt not your own cash.

 

[Blair]

?? What happened?

 

[Blair]

Good on you, glad to hear you are having some good sales! Hope the builds go well and costs come in as expected! Feel free to share some photos

 

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[Get Right]

shifting from stand alone housing to multi unit complex changed my business overnight

That's very interesting. Did you sell the units individually (townhouse/condo) or keep them for the rental income?

 

[jon.a]

Early in this thread I promised to show you the numbers, so here they are! These are from house #2 which I would consider repeatable.

Sales Price: $532,000
Lot Cost: $44,450
Construction cost: $395,000
Closing Costs: $36,173
Interest costs: $14,241
Business costs: $6,000
Net Profit: $36,136
Net profit as a percentage: 6.79%

My goal is 18-20% profit so I still have some work to do... but it doesn't hurt to throw $36k in the bank. My current houses are benefiting from the knowledge and the profit is trending higher.

How long did this take?

 

[Sauce]

Early in this thread I promised to show you the numbers, so here they are! These are from house #2 which I would consider repeatable.

Sales Price: $532,000
Lot Cost: $44,450
Construction cost: $395,000
Closing Costs: $36,173
Interest costs: $14,241
Business costs: $6,000
Net Profit: $36,136
Net profit as a percentage: 6.79%

My goal is 18-20% profit so I still have some work to do... but it doesn't hurt to throw $36k in the bank. My current houses are benefiting from the knowledge and the profit is trending higher.

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

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

Love the thread and the discussion!

 

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[Blair]

That's very interesting. Did you sell the units individually (townhouse/condo) or keep them for the rental income?

Sold individually, have two current projects that are build to keeps but rest are built and sold. (usually sold before construction starts)

 

[Striver]

It was below freezing and the wind was howling...

Freezing in Florida?!?! lol

You just lost all credibility, in my eyes!

 

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[Striver]

10 months of build time. I build three at a time though.

Have you worked on getting build time shortened significantly? I've seen other member mention build times of half as long.

DISCLAIMER: I know nothing of building homes... just going off of what other people are saying?

 

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[Get Right]

How is an employee cheaper than a contractor? The hourly rate should be about the same, but with an employee, you're on the hook for FICA taxes as well... Plus, you should now carry liability and workers comp under your business to cover him, which is likely more expensive than if he was covered under his own policy as a subcontrator.

I always advise investors never to classify a worker as an employee when you can legally classify him as a contractor (per IRS rules). There are few upsides and several downsides (cost, liability, paperwork, overhead, etc)...

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.

 

[Get Right]

Have you worked on getting build time shortened significantly? I've seen other member mention build times of half as long.

DISCLAIMER: I know nothing of building homes... just going off of what other people are saying?

Thanks @Striver . I do need to shorten the build time. My houses are all on pilings so it takes a little longer but I would love to see 7-8 month builds. I will take your advice and see what I can do! Thanks again!

 

[Striver]

Thanks @Striver . I do need to shorten the build time. My houses are all on pilings so it takes a little longer but I would love to see 7-8 month builds. I will take your advice and see what I can do! Thanks again!

Half the time time is twice the profit.
Third less time is 33% more profit.

Just saying!

 

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[WJK]

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!

You're smart to use that tax loop hole to your advantage. Hopefully, with each flip, you are getting rid of your mortgage nut. By now, or soon, you should be mortgage free. And that gives you leverage to step up to better performing investments.

Check with your accountant as far as that SFR (single family residential) tax loop hole concerning the multi-unit idea -- proportional parts of the profits, upon selling, are treated differently since you will own income units with the associated depreciation. (But, that depreciation from the rentals can really change your Federal tax picture.) I would stick with 2 to 4 units, due to the mortgage market -- it will keep you out of the commercial lending market, especially when you are ready to sell. The residential lending market is much broader and forgiving.

I mentored a young man for a few years, who did the small unit plan a few times. He's retired in Florida playing with his kids and doing the small unit plan again there.

Good luck!

 

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[Johnny Le]

Thank you for continually updating this progress thread! I look forward to see how far you can go!

 

[Johnny Le]

Updates please!!!

 

[Johnny Le]

I'm glad you're going harder than before! 7 houses going at one time?! Quite inspiring!!

I'm in the process of working towards my contractors license as well. Funny you mentioned the multi-family space, as that's my plan for my first project. Currently planning and shooting to break ground in June/July of this year!

Keep on rocking!

 

[Real Deal Denver]

Absolutely fascinating thread. Congrats on the quality and success you're enjoying!

As a real estate agent, I have a basic question for you GR, which I hope you can shed some light on. It's basic for you, but it isn't for me.

I always wanted to work with builders. It seems some builders have their properties listed by one particular agent. As a builder, what would it take from me, an agent, to get you fired up and have me be your exclusive listing agent?

Another question - I would be open to having an office in the builders office, which is their model home usually. My role would be to assist the builder's customers that need to sell their existing homes but don't know who to work with.

I can visualize both of these roles being combined into a discounted package of some sort to the builder. It could certainly be a win win for everyone.

Here is what I bring to the table. Full time appraiser for 18 years. Agent for 9 years. I live and breathe real estate. My knowledge level is close to a 10. My sales ability is maybe 8 or higher (10 in some areas). My partner is my wife. I'm a no BS, very detail and fact orientated, kind of guy. Approaching 60 - which means I'm not mistaken for a hunky movie star jock type of guy...

Any insight to these ideas would be greatly appreciated. I live in the Denver, CO area, which is a hot market, and the builders here are, for the most part, very quality and high end orientated.