First Spec

[Dustin Morgan]

Please give me your opinions.

I'm working towards my first spec build. The first few are going to be hard to fund so my plan is to start small. I have purchased two vacant lots, one with cash for $19k and the other is seller financed for $21k w/ 30% down. The lot I paid cash for is a nice lot w/ a great view that I felt deserved a larger home so that is why I bought the second lot. Both lots are held in the same LLC.

I had plans drawn up on a 1500 sq ft home and got bids to build. Construction cost is going to be $130k so I will be into this project for about $100/ sqft.  Comps in the neighbor hood are all over the place $90-$150/ sq ft with the new construction homes right around $140/ sq ft.  The house next door to the lot I am planning on building on is for sale for $143/ sqft with a pool and has been on the market for 45 days.  I want to sell my spec as fast as possible since I will be paying high interest so I'm thinking I should shoot for $120/ sqft.  That would net me about a $20k profit.  Tight margin but would hopefully help sell quickly but at the same time I don't want to hurt the comps and make my next project worth less. 

Feel free to share your opinions or advice for a new developer.

[Chad Lubke]

I would try to pursue deals with higher margins.  For me it comes down to time value of money.  It takes me almost as long to finish a 1500sf home than a 3800sf home.  I have looked at doing smaller homes before and it is hard as a small builder to compete with the tract home builders.  These guys have corporate discounts and purchasing managers that are able to negotiate in scale .  I have marketed my niche to luxury home buyers and agents and have picked up more custom home builds along the way (margins are about half a spec build, but your not risking your capital).