# Spec houses?



## ruskent (Jun 20, 2005)

I know in my area people are building 3000sq and making atleast 150k profit on it. Sometimes even more if they got a good deal on the lot or sub divide a larger lot. I know one guy that bought a .75 acer lot for 65k. Built a cheap 4 bedroom 3k sq house for 160k and sold it for 450k. Now thats alot of profit! However i do live in NJ, where real estate prices are through the roof but labor rate is similar to the rest of the country. No one in my area would build spec houses if they were only making 10%!

Before i worked for myself i worked for a GC and always used to run back and forth with the permit office with the plans with estimated construction cost so that gave me a general idea what it cost to build a house.


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## Mike Finley (Apr 28, 2004)

ruskent said:


> I know one guy that bought a .75 acer lot for 65k. Built a cheap 4 bedroom 3k sq house for 160k and sold it for 450k.


I know a guy that saw an ad in the paper for a Ferrari for sale for $5.00, he couldn't believe it but he went to look at the car anyways. Turns out it was brand new, $370,000 Ferrari with 7500 miles on it. The wife had caught the husband screwing the nanny so she sold his car to get back at him.

Seriously even disregarding the guy you know that makes 100% profits on homes, if you can build 3000 sq/ft homes for $450,000 a piece and sell them for over $600,000 and pocket like you said *at least *$150,000 each you should be asking yourself what is stopping you from jumping on this unusual localized gravy train that is running through your area?


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## bmartin (Dec 30, 2005)

Spec builders in my county are making somewhere around 60% plus. I've sold 2 at almost 100% in the last 2 years . I couldn't imagine going through all the work and liability for only 10-15%. But you also don't see anything new for under $300k in our area. I live in Northern Cali.


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## Bob Kovacs (May 4, 2005)

bmartin said:


> Spec builders in my county are making somewhere around 60% plus. I've sold 2 at almost 100% in the last 2 years . I couldn't imagine going through all the work and liability for only 10-15%. But you also don't see anything new for under $300k in our area. I live in Northern Cali.


And how, pray tell, do you sell a house and make a 100% profit margin? I'm assuming you got the house for free?

Bob


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## Cole (Aug 27, 2004)

Bob, I am wondering the exact same thing.

I am moving to Cali.


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## Dmiller (Mar 20, 2006)

ok A+ I am going to hold you to it....... Thanks guys for the info...... It is going to help me out alot


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## Tscarborough (Feb 25, 2006)

I have been in Austin for about 20 years. I live in far SW Austin, Actually in Hays County. The market is blowing and going, as it has been since about 1995. However, I feel the local market is soon to take a dive, as housing stocks are way up, esp. in the 500,000-1,000,000 sweet spot. Also, some of the local communities are running out of infrastructure, which is also going to limit future expansion to the South and West. Still will be a good market, just not crazy like it is.

Triple net is how much money you put in your pocket.

If I had enough money in the bank to build it for cash, I would do it tomorrow. I will tell you, however, that I also deal with a lot of people who are "contractors" building their first house (usually to live in), and they lose their ass and sometimes their mind and their marriage. It is best to get some OJT on someone else's dime.


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## ruskent (Jun 20, 2005)

Mike Finley said:


> I know a guy that saw an ad in the paper for a Ferrari for sale for $5.00, he couldn't believe it but he went to look at the car anyways. Turns out it was brand new, $370,000 Ferrari with 7500 miles on it. The wife had caught the husband screwing the nanny so she sold his car to get back at him.
> 
> Seriously even disregarding the guy you know that makes 100% profits on homes, if you can build 3000 sq/ft homes for $450,000 a piece and sell them for over $600,000 and pocket like you said *at least *$150,000 each you should be asking yourself what is stopping you from jumping on this unusual localized gravy train that is running through your area?



Maybe since i don't have the capital! It ain't to unreasonable to make a 100% on a spec house. I could buy lots all day long for 20k and put up a 16-1800sq ranch for 100k and sell them for 220k+ all day long.


The builders that bought land 3-4 years ago are making over 100%. I know a guy that bought 32 acers for 180k. It got subdivided into 7 lots. 6 3acere lots, and 2 7 acer lots. Hes spending 225ish to put up 4500sq houses on slabs and selling the ones on 3 acer lots for 500k. The first house he sold covered all the land cost. All lots have driveways off the main road, so no road devlopment cost. Hes now has a sign up trying to sell the remaining 3 3 acer lots for 250k each, and the 7 acer lots for 350k each.

Matt


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## Tscarborough (Feb 25, 2006)

A bank would be more than happy to loan you the money on that deal~go for it. and report back....


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## bmartin (Dec 30, 2005)

It can be done here. I do everything but drywall and HVAC myself. First house had $165,00 in it sold it for $335,00. The one I am completing now I will have $310,000 in it and it's market value is $600k plus. THe market here was going nuts. It has slowed down quite a bit in the last 6 months but I wouldn't do it for less than 60%. I also have a lot of hours in a house. I've seen some houses throughout the country going for $150,000 that would go for $350,00 in my county.


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## Mike Finley (Apr 28, 2004)

ruskent said:


> Maybe since i don't have the capital! It ain't to unreasonable to make a 100% on a spec house. I could buy lots all day long for 20k and put up a 16-1800sq ranch for 100k and sell them for 220k+ all day long.
> Matt


I'm not trying to dog on you, but there are two elements to making money the *dumb muscle *and the *smart money*

Believe me if somebody with smart money finds out that he can invest $120,000 and make $100,000 profit in less than 6 months, he will give dumb muscle that money as you put it - all day long.

If I was you, seriously I would start making phone calls and don't give up until you find somebody who will partner up with you. $120K is virtually nothing, it's chump change really. It's really about $12,000 to $15,000 in real money, meaning there are literally thousands upon thousands of people who can raise 120K easily with just a signature on a loan, a few points of up front interest and some interest over the term for 6-9 months, which would cost them about 12k-15k.

Seriously you are sitting on a gold mine if you can do what you say you can do, go find somebody to put up the money, it really won't be that difficult. Hard money lenders commit $120K all day, every day with only a return of at best $20,000. Can you imagine the amount of hard money lenders who would be beating down your door and fighting each other to get a return of $60,000 instead?

I'm not blowing smoke up your butt, anybody with any experience or knowledge about real estate investmenting will back me up on this.


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## Mike Finley (Apr 28, 2004)

bmartin said:


> It can be done here. I do everything but drywall and HVAC myself. First house had $165,00 in it sold it for $335,00. The one I am completing now I will have $310,000 in it and it's market value is $600k plus. THe market here was going nuts. It has slowed down quite a bit in the last 6 months but I wouldn't do it for less than 60%. I also have a lot of hours in a house. I've seen some houses throughout the country going for $150,000 that would go for $350,00 in my county.


Bmartin - not to rain on your parade either, but you aren't comparing apples to apples. Because you are doing all the labor yourself you aren't making a return of 60%.

Take a closer look at these numbers I posted again and do the math.

*Land costs 20%-25%
Materials 25%-30%
Labor 20%-25%
Overhead/Selling 6%
Financing 2%
Profits 10%* 

See that 10% profit and 25% labor numbers, you're not accounting for that 25% in your 60% profit number. If you are doing the work yourself you have to subtract the labor percentage out of the equation. You're basically paying yourself to go to work everyday, that isn't profit, that's a salary. That labor you are paying yourself you would have to pay somebody else if you weren't doing the work yourself - get it? These net percentage numbers we are talking about are without lifting a hammer or driving a nail.

When you do the math you are closer to 25% which is still a great number, no doubt. Keep in mind that 10% profit quoted as average had builders doing as little as 2-3% and as high as 29% so you are still on the way upper end. :thumbsup:


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## Mike Finley (Apr 28, 2004)

Back to Ruskent - the answers to the puzzling numbers you are posting here are right within your post...



ruskent said:


> The builders that bought land 3-4 years ago are making over 100%. I know a guy that bought 32 acers for 180k. It got subdivided into 7 lots. 6 3acere lots, and 2 7 acer lots. Hes spending 225ish to put up 4500sq houses on slabs and selling the ones on 3 acer lots for 500k. The first house he sold covered all the land cost. All lots have driveways off the main road, so no road devlopment cost. Hes now has a sign up trying to sell the remaining 3 3 acer lots for 250k each, and the 7 acer lots for 350k each.
> 
> Matt


The profits you are quoting are based on land appreciation. Lets do the math on this one also...

$500,000 completed house
-$225,000 labor and materials
--------------------
$275,000 profit right?

According to what you posted he bought the land for $5600.00 an acre and is not able to get $83,000 an acre or $77,000 profit an acre.

House above that he makes a $275,000 profit on *$233,000 *of that profit is coming from the land appreciation.


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## bmartin (Dec 30, 2005)

Mike I agree with you. I do the work on nights and weekends. I guess my point is the original poster asked about making money in Spec houses. I assumed if he was trying to make money he would do a substantial amount himself. There is a chance to make a big return on your capital investment. If i subbed out everything it would only cost $40,000 more for the total project so it is still a pretty good deal. Although that could change anytime the way the market here is going.


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## Mike Finley (Apr 28, 2004)

Hey I understand where you are coming from.


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## ruskent (Jun 20, 2005)

Mike Finley- A couple months ago i was really thinking about buying alot and trying to put up a spec house. The thing is i am only 20 years old. I got the construction loan application and i did not even fill it out. If i gave them the information they wanted they proably would of laughed at me.

But you know what, maybe i'll look into it again. I got the money to buy a nice lot cash. Thats not a proablem. Its getting the money to build the house without having some silent partner that expects 50% of the profit. I could buy the lot and in 2 months have 25% or more of the construction cost in cash. That would mean i'd have about 38% of the project funded out of my own pocket and would only need a 75-80k construction loan.


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## Mike Finley (Apr 28, 2004)

ruskent said:


> Its getting the money to build the house without having some silent partner that expects 50% of the profit. I could buy the lot and in 2 months have 25% or more of the construction cost in cash. That would mean i'd have about 38% of the project funded out of my own pocket and would only need a 75-80k construction loan.


I'll give you a little advice and you can take it or leave it but you sound like a guy trying to make something of himself...

First off being 20 doesn't mean anything in regard to credit, age is meaningless there are no points awarded or subtracted based on your age in computing your FICO score. You can figure out the steps to have credit and then take step1, step2, step3, step4... you have to take the steps the only thing you need to decide is will it take me 1 year to make it to step 10 or will it take me 5 years to get to step 10.

Not wanting to give a silent partner 50% of the profits is an atitude you should get rid of as fast as you can. Treat business as business. The golden rule is whoever has the gold makes the rules so swallow your pride and accept that you are the peon until you get the gold. Do what it takes to get the gold then you can have an ego. Until then having an ego is only going to shoot yourself in the foot. 50% of 100K is much better than 100% of nothing in my book.

Also in further regard to the 50% to a silent partner. If at the end of the project and giving the silent partner his share does nothing but net you the same money in your pocket as it would have if you had just been employed then it doesn't make any sense. BUT if at the end of the project your share is more than you would have made as an employee - in other words your share is $60,000 and you paid yourself $25,000 in salary during the build for the labor then you end up with $35,000 in profit. This means you came out ahead right? You sock that 35K away and do another one giving away way too much profit for your tastes. You make another 35K, you sock it away. Now you have $70K in cash - do you think you can't get a bank to talk to you with 70K of your money to commit? That's what I'm getting at, swallow the pride if it is going to get you where you want to go.

And finally - after all that, just to let you know. Doing what you want to do you should never have to give up 50% of the profit. What you want to do is being done everyday. There are private investors all over the country with cash that they want to invest. None of them need to take 50% of your profit in order to justify the investment. A 20% return is going to be very acceptable for most of these guys. 

You have to understand it is only money and numbers and interest. Private hard money lenders do this all the time, there is a standard they play by, your 50% number is way over the standard. If you offered a 50% split you would have literally dozens and dozens of these guys standing in line to give you money. Think what the alternative is - they can put their money in a CD and earn 1.5%, they can put in a bond fund and earn 3.5%. Do you see the reality here. All these guys are looking for is a return that is matched to the risk, and that is far from 50%.

Good luck. You should pursue your goals.


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## King of Crown (Oct 12, 2005)

Mike Finley said:


> I'm not trying to dog on you, but there are two elements to making money the *dumb muscle *and the *smart money*
> 
> Believe me if somebody with smart money finds out that he can invest $120,000 and make $100,000 profit in less than 6 months, he will give dumb muscle that money as you put it - all day long.
> 
> ...


I know some developers who have made over 500% profit, they bought the land two years ago, and just got done devolping it 6 months ago. that is just how the realestate market was here. they were multi million dollar homes though.


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## Tscarborough (Feb 25, 2006)

Developing is a whole different animal than building a spec home.


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## King of Crown (Oct 12, 2005)

Tscarborough said:


> Developing is a whole different animal than building a spec home.


they were spec


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## denick (Feb 13, 2006)

Is this speculative talk or intellectual speculation on the way to become a speculator in homes built on speculative investment?


Nick


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## Tscarborough (Feb 25, 2006)

Developers make their money by turning undeveloped land into developed land, usually by doing the undergrounds and access. They also can build spec homes, but they usually do it under a different company. The fact that they do both does not change that, regardless of the corporate setup.


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## King of Crown (Oct 12, 2005)

Tscarborough said:


> Developers make their money by turning undeveloped land into developed land, usually by doing the undergrounds and access. They also can build spec homes, but they usually do it under a different company. The fact that they do both does not change that, regardless of the corporate setup.


the only develped land that we have out here is tract houses.


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## Tscarborough (Feb 25, 2006)

Not aound here. We have devlopments with homes going for more than a million, in many cases much more, and in those cases the developer may keep none or only a couple of lots, selling the rest. We have tract home developers too, and they often are tract home builders.

Development means just that: The development of an undeveloped parcel into a developed one.


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## ruskent (Jun 20, 2005)

Mike Finley- You sure gave me alot to think about! I got to check out what my credit acctually is. I'm guessing it has to be some what decent since i just got a credit card a couple of months ago and they gave me a $7500 limit and all my friends only have $500 limits. Also i have a truck loan (with my dad as a cosigner) which i always paid my payment on time and i bought a trailer (with cosigner) and i paid that off. I think i'll talk to my bank again this week. I would most likely try to get th emoney from a bank vs a private lender since i don't know anyone personally that has the money/that i would ask.

I have to see how the next couple of weeks go. I have alot of big jobs on the table right now.


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## Cole (Aug 27, 2004)

I say think about it first, of course you can make some good money with a spec home but it can also turn into a hassle.

For instance, not understanding the market in your area and over-building a home or under-building a home.

Its a big step so think about it, no need to rush into it.

Just my 2 cents.


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## acme const. (Mar 26, 2006)

*how much do they have in it?*



Dmiller said:


> i Live in College Station Texas. What is the profit like on them. Lets put it this way if you wanted to build a house in a ares that the houses are going for 140-150 what does it cost to build a house that goes for that, if you are the contractor


around 130000 to 140000


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## Mike Finley (Apr 28, 2004)

ruskent - take a look here

http://www.realestateinvestingnetwork.com/HardMoneyLenders.htm

also start haunting this place

http://www.thecreativeinvestor.com/ViewForum26-4525.html


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## Zatol (Dec 4, 2005)

Just make sure that you are prepared for birthdays....

Here is one of mine which is turning 1 year old next month...

$1500/month...

Our profit margin generally runs between 8% and 12%. If I could build out of my pocket, I could increase my profit by another 5%-8%. Cut out real estate agents and increase the profits another 5%... Even with that, I could not touch the profit margins mentioned in this thread.

This is an old pic.. My new ones exceeded the 100kb limit.


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## Glasshousebltr (Feb 9, 2004)

Zat, those figures are subing out to all trades correct?

Bob


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## Zatol (Dec 4, 2005)

Yes it is. However, any work that I did 'in-house' would have a cost associated with it, as you know... Some guys do not count their labor as an expense and report an erroneous higher profit margin. 

It is not cost effective for me to do much work on the houses. I leave that to the professionals while I work on increasing volume and managing the business. I'd rather make 10% on 6 houses than 50% on one similar house.


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## Glasshousebltr (Feb 9, 2004)

Interesting how this business is so spread out into many trades, attitudes, materials and views, however when the cards hit the table they all boil down to the point you just made, no matter your position or standing in the realm.

Bob


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## chrisherk (Dec 11, 2005)

ruskent said:


> Mike Finley- You sure gave me alot to think about! I got to check out what my credit acctually is. I'm guessing it has to be some what decent since i just got a credit card a couple of months ago and they gave me a $7500 limit and all my friends only have $500 limits. Also i have a truck loan (with my dad as a cosigner) which i always paid my payment on time and i bought a trailer (with cosigner) and i paid that off. I think i'll talk to my bank again this week. I would most likely try to get th emoney from a bank vs a private lender since i don't know anyone personally that has the money/that i would ask.
> 
> I have to see how the next couple of weeks go. I have alot of big jobs on the table right now.



also, If you get a construction loan, when a sub wants money after a phase or is finished, he wants to get paid that day. When you apply for money from the bank to pay him the bank wants to inspect it. It may take 2-3 weeks before the bank cuts you a check. I learned to have cash on hand so that i can pay these people right away
chris


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## Joasis (Mar 28, 2006)

This has been a fascinating read, and now I wonder what Mr.Miller is thinking now about building a spec home? I have been in construction awhile, and just now there is interest in spec houses in my community, but with a different twist. Cheap lots, where houses once stood, and 1250 sq ft as a guide. Fast to build, quick to sell, and we still make only 10 - 15% clear. Of course, depending on who is doing the math, how you actually calculate it. My guys do it all, we sub out only the mechanicals by bid...but there are days it would pay if we stayed where we started, in one specialty instead of trying to do it all.


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## kenvest (Sep 27, 2005)

as the market slows, the successful spec builder will be buying teardowns and banking on location as much as quality. 

specing a house on the outer fringes can be risky if road projects fall through or get delayed. utilities are always first around here and all its seems to do is breed developement and TRAFFIC! road improvements always seem to be on the z-list and anyone buying a million plus home doesn't like sitting in traffic or constantly banging through construction zones.....always stay plugged into your local planning commision and DOT.


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## Dmiller (Mar 20, 2006)

guy all the info I great....... but I am diffently going to put more thought in it before jumping in on it, but at the same time I dont want to waste time......


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