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EXECUTION Let's Build a Spec House!

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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!

20180814_144955.jpg
 

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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.
 
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October update: The spec business continues to do well and the market remains strong. I'm hedging a little for the anticipated weakness in 2019. I'm pulling this hedge off by pre-selling a few builds (something I prefer not to do). It shifts the risk to the owner(s) and has a nice side effect of limiting my borrowing needs. Here is the current mix:

0 inventory (all finished houses sold)
1 spec house (framing now, picture below)
4 pre-sold houses (various stages mostly infancy)
5 projects in drawing stage (will convert to pre-sold when cash is in hand)
1 lot under contract (sold it to a potential long term customer)
12 or so proposals waiting for go/no-go

20181002_163042.jpg


If you attended the 2018 summit you know my goal was to have 10 houses under construction in 2019. It looks pretty certain I will hit those numbers. I revised my 2020-2023 goals accordingly.

A few challenges in front of me:

1. I need a right hand employee. I am searching but the right person hasn't come into the picture yet.
2. Scheduling. With 10 or so projects going it gets a little hectic scheduling all the things that need to happen. I purchased some builder software and it is helping big time.
3. I'm running out of land and inadvertently drove the price up on myself. Raising prices is difficult due to the archaic appraisal system....so I need to figure something out.

So, things are going well. I feel pretty safe with my strategy/risk and the upside continues to be good. As always, just ask if you have any questions.
 

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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.
 

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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.
 
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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).
 
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I just broke ground on my first spec!
Congrats! Keep notes on everything. I still use notes from years ago. It will make you money.

UPDATE: As requested

The spec home business continues to do well. It is growing nicely into the 10 house/year target I set for 2019. I have 6 under construction and a few more proposals out. All are sold with 1 exception (not on the market yet).

I hired 2 project managers and soliciting for another Architect.

I bought some new equipment to make life easier. I'm using the same method where I bill it out higher than my financing note. So each piece makes me money every month...with no effort on my part.

I have a few challenges ahead. Cash flow is becoming more interesting due to the high dollar figures. I'm also spending a little more time on the company than planned. I think the new Architect position will resolve a lot of that.

The business remains a heck of a lot of fun. The rough patches are easier to glide through thanks to my work on the comfort zone (see thread in signature). The high points come mostly from random compliments about our work. I especially like the ones that say I am dramatically improving their neighborhood. I'll try to take some pictures tomorrow.

As always, ask anything you like!
 

Johnny Le

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Awesome! Right on track for your goal. I'll be following along your new thread as well. Thanks for recommending that PM software, it really is making my life a lot easier. I do have a few questions for you.

Are your profit margins increasing with each spec?
With 2 project managers, how many hours are you putting in a week now? At what point did you feel the need to hire one?
Would you have any building tips/tricks to keep the build cost low?
Are you using the PM software's templates, or have you built a custom setup?

Pictures please! :clench:
 
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Are your profit margins increasing with each spec?
With 2 project managers, how many hours are you putting in a week now? At what point did you feel the need to hire one?
Would you have any building tips/tricks to keep the build cost low?
Are you using the PM software's templates, or have you built a custom setup?
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.
 

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Wow a 6% increase! How would you go about hitting 20% though? :oops:
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.
 
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Rainy today so no pictures, trying again tomorrow.

BTW - Check out that new shiny red badge under my avatar!
 

Raoul Duke

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It's still overcast but I promised pictures so here goes! These are 2 new models I'm testing the market with (you've seen the others). One is already sold, the other is not on the market (on purpose).

20190204_165025.jpg

20190204_172942.jpg
Cheers!
 

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I think your truss' are sexy! Thanks for the awesome journal! Great read.
 
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Finished another one. Thought you might enjoy a night picture:

3060 night.jpg

I'll have to say though I'm a little disappointed with the market response on this one. It gets tons of ohh's and ahh's but guess what...not 1 showing scheduled. It's only been 2 weeks so I'm trying to not be negative. But it's tough. I pour everything I have into these houses.

Anyway, I'll keep my mild depression to a minimum. It's just another Desert of Desertion. Yep those still happen.

On a positive note my phone rings off the hook with customers wanting me to design/build them a house. My conversion ratio is off the charts as well. I'm really only hampered by 3 things that if solved could blow up to a monster business: (please feel free to give me advice on them!)

1. Operating capital. It takes about 70k per job for me to cash flow. Currently this limits the number of houses I can build at a time. My funds now are a hodgepodge of cash and small lines of credit.
2. The correct employees. I have great guys already but to get really big I need a few rockstars sprinkled in. I've tried the usual approaches but these guys have been eluding me.
3. At this point I really need a business coach. I think the efficiency of using a coach would speed up some areas that I currently neglect (due to my lack of knowledge). I haven't even started looking for one so my bad here.
 
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Out of curiosity, what is your average cost per square foot to build not including the land?

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$176/square foot
 

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Johnny Le

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Hey boss man!! It's been awhile since we've spoken/updated this thread! How has everything been going for you regarding your spec building business? I've got 2 on the market right now.
 

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