Building my first spec home!

[John Burtle]

Well, here goes nothing. This has been a LONG time coming. 

I have wanted to get into flipping houses and building houses since I was a little kid. I helped an Invester from the age 14-19. He flipped houses, built apartment complexes etc....so that's where me wanting to do all of this comes from.

Rather than flip houses I'm going straight to building a new home from the ground up. I am beyond nervous. But unless you take a chance you'll never know.

Some basics on the home. It will be a single-story ranch with a full semi-finished basement. 9' walls. Laminate flooring in main areas with carpet in the bedrooms. 4 bedroom, 2 full baths, and the basement will have a full bath roughed in as well as a wet bar rough in. 1 egress window in the basement for a future bedroom. I will frame the future bedroom, but not finish it.

Vinyl siding with partial stone across the front. Oversized 3 car garage. 2182 square foot total.

I came up with $385,000 to build for material/labor. It appraised for $519,000. I will be listing for $495,900.

I'm building in a brand-new subdivision. Of course, the subdivision is surrounded by other subdivisions that are full of homes. There's one home that's already built and sold. It sold for $440,000 5 months ago. Its about 900 square foot smaller than the one I'm building. 

There's another one that's almost finished. It's still for sale. That guy started his build 6 months ago and has had it listed since day one. They are just waiting for a few odds and ends, but it'll be done in a week or two. 

What makes me nervous is his hasn't sold yet for the $495,900 price. It is basically the same house I'm building. Just different colors etc....He initially listed his for $505,000.

There are comps in the area that justify the 495-500K.

I plan to do some of the work myself. I plan to prime the whole house and then have a painter come in and paint. I will prime/paint the garage myself. I will do some of the flooring myself, set the cabinets myself, and do some other odds and ends. So that 385K should drop down to the 370's all said and done. Again, these are all rough numbers. We all know how things can change. 

The bank set me in at 7.1% interest (construction loan short term)

This will be a side hustle for me. I have a full time w2 job. (I ended up getting my real estate license last year as a side hustle too) because I was dead set on flipping/building homes. I want to save a little $ by not having to pay an agent over 25K in commission for a project like this. I'll be offering a 3% commission for an agent to bring me a buyer for this build. At the end of the day, it will probably take about 5-6 months to build it start to finish. I hope it is sold before its done. That's of course the goal. Worse case if it is done/sold within 8-9 months and I profit $15-20K I'll be happy with my first big project. The end goal is to make $30K all said and done off new home builds and subbing 90% of the work out. Builders in my area have told me that's generally what you can swing. At times you can profit $40-50K. It just depends. Those profit numbers are after all expenses are paid. 

I will post pictures as the build comes along. The basement will be getting dug next week. So, if you're interested, please follow along! I will post pictures, numbers, and anything else one may want to know from start to finish. I have read so many books, read so many posts on here, and have listened to so many podcasts. I am so excited to do this, but I don't think I've ever been so nervous! 

To the ones who build/have built spec homes I'd love to hear your stories and advice.

[John Burtle]

The 385Kish includes the lot. The lot was $65,000. 

[Bryant Brislin]

My two cents would be to wait to put it on the market until a lot closer to it actually being ready, if not once it's ready for move-in.  Listings that have been sitting on the market seem stale, not exciting and spook buyers in that they may think there could be an issue as to why it's been sitting on the market.  I know the production homebuilders sell lots way in advance, but I think that's a whole different ballgame.  If anything, have a small sign in front of the house that says who the builder is and phone number (that's common for contractors to do, and also so that neighbors feel they have some to call if there is dust blowing from the site or whatever), and then you may have people calling you asking about availability (people always want something more that they had to chase and can tell their friends the story of how they got the house).  When you get the calls, say "Oh, wow, well I was probably gonna move my family in once it's built, but I might be open to just selling it, since my wife is already talking about wanting to do another house for [make up a reason]." The people within your subdivision may sell the house for you, as they may have family/friends who want to live close to them, and people are always intrigued by new construction in their neighborhood.  So same thing, if they approach you, make it seem like there is a little bit of a chase, but in the same convo say "Well maybe, yea" so that they feel like it's a conquest to get the house.  Either way, you will learn a TON from this experience, and I wish you the best!

[Dave Wells]

Hi John - I have gone down the same path as you.  Started with house flipping.  Then moved into building and selling and keeping spec houses as rentals in AZ.  Like you I also have the RE license to keep some of the commissions and better control.  Most recently was able to get my general contractors license.   If you like to connect and chat please reach out.  I can share what I have learned the last couple of years of doing this. Best of luck.

[Ali Radoncic]

@John Burtle That's awesome man, good luck to you.  I would really enjoy hearing about the process as you move through it!

[Jack Matthias]

Hi John! 

I think you'll be happy with how things should turn out once sold. I work with a builder who does the same as you and has great success. I see your in Illinois, are you around Chicago or another part of the state?

[Leilah Davis]

Hi John, very exciting and congrats! My husband and I are general contractors, and I am also a licensed agent to save on listing fees. We built and sold 8 spec homes from 2020 - 2022 before taking a break and haven't been able to get back into it since due to market conditions in our area. Feel free to DM me if you have any questions about the spec build process!

A couple questions I have, just out of curiosity:

1) Are you GC'ing the project yourself or working with a builder? 

2) Why are you predicting only $30k profit if your cost to build including the lot is $385k and you're listing for $495k? Do you mind giving a brief breakdown of your other costs? I'm assuming architect fees, GC fees, Real Estate commissions, and of course interest on your loan ... but just curious as we haven't really dealt with any of those additional costs for our builds. 

3) What market are you in and how is the market doing overall? Does it actually make sense to be building in your market right now, or are you just doing it because you're ready and want to do it? I'd caution against building because it's the right time for YOU ... you should build when it's the right time for the MARKET. But it sounds like you already have all your ducks in a row and are ready to move forward, so I wish you luck!! Do you have a plan if the house doesn't sell right away? 

[Joshua Stewart]

While I haven't done new construction as an investor, I've been involved with them on the design and construction side. $15-$20,000 seems like a very small profit on a $500,000 house. That's only 4%. All the investors I've worked with target 20% or more.

Just seems like a lot of risk for such a small profit. Maybe I am missing something? I would love to hear from investors who have done this before if this small of a profit % is normal?

[Leilah Davis]

Quote from @Joshua Stewart:

Maybe I am missing something? I would love to hear from investors who have done this before if this small of a profit % is normal?

Nope, not in my area anyway. I don't know anyone who'd take that big of a risk for such a small payout. We were making $80 - $100k on $300 - $400k houses when the market was hot. So yeah, your 20%+ is much more accurate. The worst we ever did was like $40k on a $350k house and that was a low point for us ... But I also haven't done spec building the way John is talking about doing it. We draft the jobs ourselves, GC the jobs ourselves, avoid financing whenever possible, and I handle the listing as a licensed real estate agent, so we're collecting all the profit that can possibly be had on each job (aside from the fact that we try to not self-perform too much and mostly sub out the work). I did ask a couple questions above to try and understand why his profit is so low, but he never responded. *shrug* 

[Alex Mocanu]

Quote from @John Burtle:

Well, here goes nothing. This has been a LONG time coming. 

I have wanted to get into flipping houses and building houses since I was a little kid. I helped an Invester from the age 14-19. He flipped houses, built apartment complexes etc....so that's where me wanting to do all of this comes from.

Rather than flip houses I'm going straight to building a new home from the ground up. I am beyond nervous. But unless you take a chance you'll never know.

Some basics on the home. It will be a single-story ranch with a full semi-finished basement. 9' walls. Laminate flooring in main areas with carpet in the bedrooms. 4 bedroom, 2 full baths, and the basement will have a full bath roughed in as well as a wet bar rough in. 1 egress window in the basement for a future bedroom. I will frame the future bedroom, but not finish it.

Vinyl siding with partial stone across the front. Oversized 3 car garage. 2182 square foot total.

I came up with $385,000 to build for material/labor. It appraised for $519,000. I will be listing for $495,900.

I'm building in a brand-new subdivision. Of course, the subdivision is surrounded by other subdivisions that are full of homes. There's one home that's already built and sold. It sold for $440,000 5 months ago. Its about 900 square foot smaller than the one I'm building. 

There's another one that's almost finished. It's still for sale. That guy started his build 6 months ago and has had it listed since day one. They are just waiting for a few odds and ends, but it'll be done in a week or two. 

What makes me nervous is his hasn't sold yet for the $495,900 price. It is basically the same house I'm building. Just different colors etc....He initially listed his for $505,000.

There are comps in the area that justify the 495-500K.

I plan to do some of the work myself. I plan to prime the whole house and then have a painter come in and paint. I will prime/paint the garage myself. I will do some of the flooring myself, set the cabinets myself, and do some other odds and ends. So that 385K should drop down to the 370's all said and done. Again, these are all rough numbers. We all know how things can change. 

The bank set me in at 7.1% interest (construction loan short term)

This will be a side hustle for me. I have a full time w2 job. (I ended up getting my real estate license last year as a side hustle too) because I was dead set on flipping/building homes. I want to save a little $ by not having to pay an agent over 25K in commission for a project like this. I'll be offering a 3% commission for an agent to bring me a buyer for this build. At the end of the day, it will probably take about 5-6 months to build it start to finish. I hope it is sold before its done. That's of course the goal. Worse case if it is done/sold within 8-9 months and I profit $15-20K I'll be happy with my first big project. The end goal is to make $30K all said and done off new home builds and subbing 90% of the work out. Builders in my area have told me that's generally what you can swing. At times you can profit $40-50K. It just depends. Those profit numbers are after all expenses are paid. 

I will post pictures as the build comes along. The basement will be getting dug next week. So, if you're interested, please follow along! I will post pictures, numbers, and anything else one may want to know from start to finish. I have read so many books, read so many posts on here, and have listened to so many podcasts. I am so excited to do this, but I don't think I've ever been so nervous! 

To the ones who build/have built spec homes I'd love to hear your stories and advice.

 Hey John! Thank you for posting your detailed plan. Since it's been about 6 months from the time you wrote this post, I would love to know how things are going. I am planning to do something similar in Michigan. I have a few long term rentals, I am a licensed agent, and in the process of finishing my first flip. Long term, I would love to get more into building and developing.

[Matthew Banks]

Very interesting post John. We should form a little group and share info as we have similar backgrounds. I've been juggling a W2 while also doing real estate investing (BRRR, flip, RE license). I've managed a number of successful rehabs and put a lot of sweat into them as well. It's been a long-time dream to do a new build and so I'm actively working to find land and begin the process.

I agree that the profit margin you post seems very small. Your 'cost' should include everything, from land purchase, soft costs, holding costs, and hard costs. The S&P 500 index returns on average 10% per year. You should have that as a benchmark in mind, since it offers a good return without any effort. A new build needs to perform better than that to make it worth your time, all the risks and capital concentration.

thanks for the advice everyone and would be happy to connect with you: @Bryant Brislin @Dave Wells @Leilah Davis @Joshua Stewart

[Sara Aviv Berger]

@Joshua Stewart

I agree with you but I guess he can consider as learning process.

I am acutely exploring new construction options in NC right now, I would love to connect it seems you have a lot of know to share :)

[Jay Hinrichs]

Quote from @Matthew Banks:

Very interesting post John. We should form a little group and share info as we have similar backgrounds. I've been juggling a W2 while also doing real estate investing (BRRR, flip, RE license). I've managed a number of successful rehabs and put a lot of sweat into them as well. It's been a long-time dream to do a new build and so I'm actively working to find land and begin the process.

I agree that the profit margin you post seems very small. Your 'cost' should include everything, from land purchase, soft costs, holding costs, and hard costs. The S&P 500 index returns on average 10% per year. You should have that as a benchmark in mind, since it offers a good return without any effort. A new build needs to perform better than that to make it worth your time, all the risks and capital concentration.

thanks for the advice everyone and would be happy to connect with you: @Bryant Brislin @Dave Wells @Leilah Davis @Joshua Stewart

I have been building 15 to 20 spec houses a year now for 7 or 8 years.. average NET NET NET profit is between 10 to 15% of gross selling price. and if we hit 20% thats a big win.. my price points have been starter or rental houses in FLA that sold in tehe 250s and those are simply not worth doing.. Up to 2 to 2.5 million in Charlestons SC.. and my current 90 home project in Canby Oregon 700k to 1 mil.. this one through all the turmoil of covid and supply issues we have hit proforma of 15% to 20% but there were a few that lingered and we made maybe 5 to 6% .. but there have been some really good ones in that development were we hit way north of 20% ..  I can see the OP giving this a shot.. but it is risky he could end up making a few bucks and getting experience might just break even or he could take a loss.. that margin is very thin in markets that are not selling as soon as you get CO  thats been one reason we have been profitable very few homes have been carried past CO so financing cost are at a minimum.. you hold a spec home 6 months past Co and every month your losing money you will not recover.

[Jay Hinrichs]

Quote from @Account Closed:

Quote from @Jay Hinrichs:

Quote from @Matthew Banks:

Very interesting post John. We should form a little group and share info as we have similar backgrounds. I've been juggling a W2 while also doing real estate investing (BRRR, flip, RE license). I've managed a number of successful rehabs and put a lot of sweat into them as well. It's been a long-time dream to do a new build and so I'm actively working to find land and begin the process.

I agree that the profit margin you post seems very small. Your 'cost' should include everything, from land purchase, soft costs, holding costs, and hard costs. The S&P 500 index returns on average 10% per year. You should have that as a benchmark in mind, since it offers a good return without any effort. A new build needs to perform better than that to make it worth your time, all the risks and capital concentration.

thanks for the advice everyone and would be happy to connect with you: @Bryant Brislin @Dave Wells @Leilah Davis @Joshua Stewart

I have been building 15 to 20 spec houses a year now for 7 or 8 years..

Just curious, generally from start to finish, from closing on buying the land to collecting a check after building the house and after escrow, how long is the process taking you?

when i buy dirt and do the horizontal these deals can take 2 to 3 years 2 years to get through approvals and horizontal  12 to 18 months to build and sell.. thats a 20 to 25 lot project.

In fill lots with no hair on them 9 to 12 months start to finish

My 90 lot project about 5 years from dirt to completion. Its hard to do return on investment since we are getting principal back starting year two as we sell.. Best I can tell all in all we about 3X cash on cash over 5 years.

infil lots depending on lot we could double our money in 9 to 12 months cash on cash.. so on and so forth.

We have been in good markets though suburbs of PDX when folks are fleeing downtown. and Charleston SC..  FLA starter homes were a bust just like you see posted by all these folks buying rentals right now in fla.. took forever construction costs sky rocketed so we made a few bucks and exited.. And were happy to do so..

Its been a wild ride though doing all this through massive inflation and supply chain issue and Covid..   However we seem to have done alright..  one infill house I did in Charleston we made 600k net on that one in 13 months.. so not bad.  I will take that over 200.00 a month positive cash flow :)  All the while running my Capital Partner business and funding over 120 deals a year for my hand picked clients.


l

[Jay Hinrichs]

Quote from @Account Closed:

Quote from @Jay Hinrichs:

Quote from @Account Closed:

Quote from @Jay Hinrichs:

Quote from @Matthew Banks:

Very interesting post John. We should form a little group and share info as we have similar backgrounds. I've been juggling a W2 while also doing real estate investing (BRRR, flip, RE license). I've managed a number of successful rehabs and put a lot of sweat into them as well. It's been a long-time dream to do a new build and so I'm actively working to find land and begin the process.

I agree that the profit margin you post seems very small. Your 'cost' should include everything, from land purchase, soft costs, holding costs, and hard costs. The S&P 500 index returns on average 10% per year. You should have that as a benchmark in mind, since it offers a good return without any effort. A new build needs to perform better than that to make it worth your time, all the risks and capital concentration.

thanks for the advice everyone and would be happy to connect with you: @Bryant Brislin @Dave Wells @Leilah Davis @Joshua Stewart

I have been building 15 to 20 spec houses a year now for 7 or 8 years..

Just curious, generally from start to finish, from closing on buying the land to collecting a check after building the house and after escrow, how long is the process taking you?

when i buy dirt and do the horizontal these deals can take 2 to 3 years 2 years to get through approvals and horizontal  12 to 18 months to build and sell.. thats a 20 to 25 lot project.

In fill lots with no hair on them 9 to 12 months start to finish

My 90 lot project about 5 years from dirt to completion. Its hard to do return on investment since we are getting principal back starting year two as we sell.. Best I can tell all in all we about 3X cash on cash over 5 years.

infil lots depending on lot we could double our money in 9 to 12 months cash on cash.. so on and so forth.

We have been in good markets though suburbs of PDX when folks are fleeing downtown. and Charleston SC..  FLA starter homes were a bust just like you see posted by all these folks buying rentals right now in fla.. took forever construction costs sky rocketed so we made a few bucks and exited.. And were happy to do so..

Its been a wild ride though doing all this through massive inflation and supply chain issue and Covid..   However we seem to have done alright..  one infill house I did in Charleston we made 600k net on that one in 13 months.. so not bad.  I will take that over 200.00 a month positive cash flow :)  All the while running my Capital Partner business and funding over 120 deals a year for my hand picked clients.


l

That's a nice combination. It just shouldn't be as hard as it is to get a house built these days.

Yup and its a joke when you have these proclamations from those running for pres that they are going to magically accelerate construction.. they can do it if they want to pay 100% of it.. but if they expect the private sector that has to work through local zoning etc.. that aint happening and you cant force people to sell the land cheaper than they think its worth or can get on the open market just because we need starter housing.

[Kenneth Bell]

@Jay Hinrichs

I currently develop in NC. I focus almost 100% on my pad ready land cost to come up with profitable deals. 20% of gross development value is the most I will pay for land. That is the skinniest deal I will even consider. That will give me a gross profit of 20% minus holding and commissions. I look for density plays that can be executed in an infill setting. Density can really help the ROI on a development deal. 100% of what I do in real estate is development deals. I don't often see people talk about it very much on here at all. Does anyone else do 100% development besides myself. I am sure there have to be a few of us??

[Jay Hinrichs]

Quote from @Kenneth Bell:

@Jay Hinrichs

I currently develop in NC. I focus almost 100% on my pad ready land cost to come up with profitable deals. 20% of gross development value is the most I will pay for land. That is the skinniest deal I will even consider. That will give me a gross profit of 20% minus holding and commissions. I look for density plays that can be executed in an infill setting. Density can really help the ROI on a development deal. 100% of what I do in real estate is development deals. I don't often see people talk about it very much on here at all. Does anyone else do 100% development besides myself. I am sure there have to be a few of us??

 I dont do 100% development but have done my fair share over the years.  for infill I concentrated on Charleston Sc and built about 35 homes in that market. uber competitive for dirt though they are running out of it and the city wont let you tear down homes in many cases because of historic considerations.

[Kenneth Bell]

@Jay Hinrichs

I try to avoid historic districts at all costs. I am in the Charlotte market and surrounding, and I do everything from luxury $950k-$2MM to starter homes from $250k to $300k and townhome sites. Land has gotten expensive in Charlotte but the new UDO has allowed for expanded density on infill lots. I have looked at other coastal markets that are less expensive than Charleston proper. Are there any emerging areas near Charleston, since it is getting so expensive?

[Robert Jackson]

Did you GC the project yourself? How did you obtain financing? Did you buy the lot outright? 

[Robert Jackson]

Quote from @Dave Wells:

Hi John - I have gone down the same path as you.  Started with house flipping.  Then moved into building and selling and keeping spec houses as rentals in AZ.  Like you I also have the RE license to keep some of the commissions and better control.  Most recently was able to get my general contractors license.   If you like to connect and chat please reach out.  I can share what I have learned the last couple of years of doing this. Best of luck.

[Robert Jackson]

Quote from @Dave Wells:

Hi John - I have gone down the same path as you.  Started with house flipping.  Then moved into building and selling and keeping spec houses as rentals in AZ.  Like you I also have the RE license to keep some of the commissions and better control.  Most recently was able to get my general contractors license.   If you like to connect and chat please reach out.  I can share what I have learned the last couple of years of doing this. Best of luck.

 How did you obtain financing for dirt few builds? Did you have builder/go or do it yourself? 

[John Burtle]

Quote from @Robert Jackson:

Did you GC the project yourself? How did you obtain financing? Did you buy the lot outright? 

[John Burtle]

Sorry for the delay. Someone messaged me months ago and told me to quit spilling the beans on the whole build and to wait until it’s done/sold before I discuss anymore numbers. That’s why I quit posting. But here’s the home. 


my oh my has it been quite the journey. This is my first spec house and I’ve learned a lot. A LOT. We are way behind on schedule to say the least. Cabinets/trim go in this week and flooring should be going in within the next few weeks. After that it’s paint and finishing touches. 

the market here has come to a hault. Which isn’t good. The interest only payments aren’t getting any cheaper. I’m ready to get this thing done, do open houses, and try to sell it. It’s been on the market for 120 days. I’ve only had 1 person look at it. They said it’s way too small for the price. (3,192 square foot total) 2,200 on the main floor alone. The other is the finished basement. I’ll update some more once the cabinets and flooring is done. Sorry again for the delay and late responses. When it’s sold I’ll post the entire journey start to finish with numbers. The main question I keep getting asked is if I’ll do it again. As of now. NO. The profit isn’t going to be anywhere I initially wanted and was told it would be. Hence spec house.  My next projects will be flips for a while. If I build again I’ll go in with a partner and shoot for a duplex or smaller home. Not a 499,000 house. 

[Dave Wells]

I ended up getting a 401k loan to cover the purchase of a lot.  Was able to find a small local bank willing to loan me a construction loan.  I did have to use some cash from savings to covering some of the build costs.  I was able to convince a local GC to work closely with me to let me manage the build to learn. He showed me what I needed to do step by step, of course this came with a fee.