One of the best strategies in today’s market for making money with real estate is spec building new construction. It’s also the most overlooked strategy.
Most wholesalers and flippers have blinders on and are only looking for existing houses to flip. While flipping houses is a viable strategy for making money, it’s not where the greatest opportunity lies in the marketplace today. In this article, I’d like to discuss why you should be building new construction spec homes.
Custom Vs. Spec
There’re 2 types of new construction and it’s important to understand the difference between them. Custom building is when an end-buyer purchases a lot and hires a builder to build them a house. Spec building is when an investor buys a lot, builds a home and puts it up for sale.
During the last recession, new housing came to a screeching halt. In places like California, Florida, Arizona, and Vegas entire subdivisions were abandoned. Brand new homes were left sitting vacant. Developers and investors alike were hit the hardest and got stuck with new houses and no buyers.
Fast forward to 2017. Now we’re in a recovering market. Most of that over-leveraged inventory has been sold and under Trump, things are recovering. Today, values are continuing to steadily increase and some predictions are that some real estate markets are on tract to reach pre-bubble values in the next year. Buyer confidence is strong and demand for new housing is back.
Bottom line- there’s no risk in custom building.
Opportunity is Knocking…
What does this mean for you as an investor? This means you have an opportunity to provide the market what it wants – new construction housing. As an early adaptor, I saw this opportunity a few years ago and immediately transitioned from rehabber to spec investor and have now built and sold dozens of spec homes and we’re even in the process of doing several land development deals in the Boise area right now.
Here’s how it goes down:
Step 1: The first step is to design and build the right house. I learn everything I can about the homes in the neighborhood or market. I research the most desirable layouts, floor plans and spend a lot of time with my agents, designers, and architect to come up with a custom plan.
Step 2: Once plans are drafted, (I know my cost to build before I ever start building), I verify that all the numbers work. I confirm my sale price based on the most relevant comps and calculate my lot cost including any lot improvements, cost to build, and of course, I factor in soft costs like commissions, property taxes, staging, insurance, etc. as well as carrying costs.
Step 3: Plans are submitted and approved, the deal is funded, and the builder steps in and starts building.
Step 4: The goal is to build the home in 3-6 months and then sell it in 1 to 3 months, making the entire project a 6-9 month time frame and after closing, everyone gets paid.
Because we’ve refined the process of building and selling new homes and because the market in Boise is prime for new construction, I’m always looking for new investors to fund deals and make money together. If you’re interested, click here to get in touch.