Building spec homes as an investor for a profit

[Robert Ellis]

Is anyone building in markets as an investor with builders where you are an out of state investor and building in a market not local and hiring a general contractor to build at which point you sell spec? We are pitching this strategy and I'd like to get someone with some experience to look at our underwriting and floorplans and budget to see how it compares to opportunities they see in other markets around the Nation. Our specific market is Columbus, OH. We build a spec home for approx $258k and resell for $375k. 

[Jay Hinrichs]

Quote from @Jeremy H.:

Quote from @Robert Ellis:

Quote from @Jeremy H.:

What is that like a 50% profit margin? I don't know much about building, but I'd say something seems off just from those numbers. Seems a little too good to be true 

 Not too good. Ohio is very cheap to build. One of the cheapest nationally. The large tract builders average $140 per square foot. We have a one story with an attic truss that sits on top so technically living space in the trusses which a lot of new builds don't. I have 10 years of real estate, finance, development, and over 15000 projects bid nationally in the past 6 years. We also have bids on every trade at that cost. It's not 50% profit margin at that cost. We try to deliver for investors to sell them around $170 per square foot. If you don't know much about building I wouldn't comment on construction costs without doing your research or due diligence. We base all of our finishes off of affordable housing and tract builders. LVT is $1.13 per Sq ft, carpet is $0.87 a sq ft, builder grade windows, slab on grade no basement, panelized construction as much as possible, simpler lighting packages. New construction homes from tract builders are selling as low as $350k for a 2200 sq ft house in our market. Ours is meant to compete and is just a little bit better engineered and designed. 

I've done plenty of rehabs/flips and couldn't care less about your personal flooring costs or construction costs. 

Buddy these are your numbers not mine- 

Costs you 258k

You sell for 375k 

(375-258)/258 = 117k or 45% 

Looks like your making close to a 45% return to me

If it was that much cheaper to build - why would anyone buy over build?

from my experince you can deduct 20% or so from gross selling price to get a net. so looks like about a 40k or so NET NET NET profit and that assumes the 258k cost has profit for Robert and the builder or if the builder is Robert then profit is built in.. Investor Risks 258k plus 10% for tax insurance debt utls etc. and the other 10% is sales costs and ( in todays market) seller assist closing costs or interst rate buy down.

I have remote spec built in  Charleston SC  500k to 2.2 million 30 plus homes there.  FLA  Northern 4 homes 275k  profit margins to small..  Indy  terrible experience would not go back there. And of course my 90 home project here in Oregon 650k to 1 mil.. so I would check out what is happening in spec building in Columbus would have to be decent rates and leverage on spec construction loans to make it worth the effort and risk.