All Forum Posts by: Leilah Davis

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* 

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? 

Every market is different, man. You can't possibly posit what makes sense to do or not do in one area of the country based solely on data from your market. That's real estate 101. NOTHING is selling in my market right now. Even commercial construction has slowed wayyyyy down. We have a relationship with a much larger developer who does multifamily, mostly apartments, and even they can't figure out where to put their money right now, because the math just aint mathing for them to build or renovate at the moment. In the SFH arena inventory build-up is massive from over a year of the real estate market being stagnant, and there is hidden inventory as well from developers who took their properties off the market and are just waiting until things turn around. It's a long road ahead for my market. We're currently shifting gears to custom and semi-custom homes.

Maybe I'm confused ... you own the land, so you're contributing the only real asset. Your friend who is a licensed GC is going to run the job, and you're sharing the risk of the CL ... Why do you keep calling him the "developer"? If it's a partnership then you are the developers TOGETHER. But I agree with @Jay Hinrichs it does not make sense to do it like this. Either don't accept any of the CL risk, let that be his contribution OR accept 100% of the CL risk, hire your friend as a GC, and collect 100% of the profits. 

The way this is set up does not feel or sound like a partnership. It sounds like he's just pushing you around and calling all the shots. It's your land! You get to do whatever you want with it. If you feel too inexperienced and you want his advice and guidance, hire him as a consultant. You literally said above that you're comfortable "paying something" for his experience and to have him "manage the entire process". Managing the entire construction process is literally what GC's are hired to do. So keep the land in your name, hire him as a consultant, pay him a generous GC fee for the build, and let him have the listing so he can earn commission. That's more than enough, and those fees can be factored into your CL. Doing it this way would require you to take out the CL in your name and bear all of the risk, but it sounds like you're confident in the numbers so I don't see why that should be a problem.  

Or, if you'd really truly rather have this be a partnership for some reason, then he needs to take full responsibility for CL. (Full disclosure I have never dealt with CL loans before, so I don't know how that would work for him to be the only signer on the CL while you own the land. Not sure if that's even doable. But as far as whether or not the current arrangement makes sense from a logical standpoint, no it doesn't seem like it does.) 

Builder and agent here. I agree with what everyone else is saying, something seems very off about this. He's definitely trying to just take a larger cut by inflating his build cost ... which honestly would be fair if he was just upfront about it. He is putting in more work and more money, he should be getting a larger share of the profits, but to pretend like he's giving you 50% is fishy as hell. I'd run in the opposite direction! You can't have a partnership with someone you can't trust. 

As far as selling the land ... you've had the property listed twice and it hasn't sold? How long was it listed for?? It's either overpriced or your market is just slow and stagnant right now (that's what we're dealing with in my market) in which case it's probably not the time to be building spec anyway. If vacant lots aren't selling, that likely means homes aren't selling, otherwise there would be plenty of existing and experienced builders / developers ready to buy your land. You certainly can list the property yourself, and I'd say typically you'll get less money for it and it'll take longer to sell if you do it that way, but if you really don't want to pay commission then go for it. Not sure what the issue is with a 6 month listing agreement, that's pretty standard where I am. Feel free to DM me if you want to discuss further. Good luck!

Hey there, builder here. 

Where are you getting the $235k - $260k build cost if builders in your area have quoted you $230 - $250 / sq ft, which would be $345k for a 1500 sq ft house?? What you're aiming for is around $160 / sq ft (FYI it's so much easier if you either stick to sq ft numbers OR total cost numbers, but bouncing around like that makes it a bit difficult to follow, especially when you're talking in ranges.) $160 / sq ft seems reasonable IF you were GC'ing the project yourself, but it doesn't seem like there could possibly be much room in there for a GC to make a decent profit. I also have no way of knowing what the hard costs for construction are in your area. Labor is the biggest cost of construction and it heavily varies by location.

My husband and I have only done spec homes thus far, but we're getting into doing custom homes now. I don't know about other builders, but I would charge an investor who doesn't have a design and doesn't know how to run a jobsite the exact same as I would a homeowner. It seems like you think that because you're an investor you should be getting a better deal than a typical homeowner, but what you're asking for literally is a custom home. You're looking for a builder to design and build a home for you. There's nothing different about your situation.

All of your questions about how to minimize cost and maximize value are great, but you're kind of jumping the gun until you can confirm that there's actually a path forward on this. That's like step 20, and you're on step 3. I'm a licensed agent as well, and happy to help with some of those questions if / when you get a little further down the path with this. 

You said the land is in a development ... who subdivided the land and built the rest of that development? Try and find out more about that. Why are they selling the vacant lots (and for such a low price) and not just developing themselves? Off the bat that sounds like a red flag to me (in other words, it seems like they could be offloading the lots because it just doesn't make sense to build there right now, due to a stagnant market or high construction costs, who knows). Of course there are plenty of explanations, but it could be a red flag. 

Yep. We built 6 homes between 2020 and 2022 that all sold quickly (under 2 weeks) and all sold for asking price or above. Our profit margins were great, at around 25% per house. Then in fall of 2022 we had 2 properties on the market when interest rates went up. They both took a month to sell, sold for WAY below initial asking price (we had to price-reduce, which we had never had to do before). We made 9.5% on one of those deals and 12% on the other. Oof. 

We immediately shut it down and stopped building and it hasn't seemed to have gotten better since. We've been twiddling our thumbs waiting for the right time to get back in. Construction costs have continued to increase during this whole time frame. Even though subcontractors are getting desperate and seemingly really need the work, they aren't lowering their prices, they're just increasing them. Home prices, surprisingly, haven't fallen THAT much. Yes, they fell, but not an insane amount. 

The bigger issue is just that the market is stagnant. It's certainly not this way everywhere, but it my city it's a very different scene than what I was used to. Average days on market in my city is like 50, whereas it was under 30 days all through Covid, with the lowest being just 6 DAYS in spring of 2022. Absolutely wild. We got spoiled by that market. At the moment things look pretty similar to what they had looked like for almost a decade pre-covid. And yes, as long as construction prices keep increasing while home prices drop or stay steady, it does not make sense to build spec. 

My guess is that Chad was not required to pay any commission to the buyer's agent as he wasn't selling any property, he was ONLY selling his services as a general contractor, which has nothing to do with real estate sales. BUT I am very curious about your situation ... My husband and I have built spec homes, but we only ever sold them once they were completed. I am also a licensed agent, so of course we paid full commission on the sales of each home we built. I've thought about listing a house that was not yet completed, and I do see other builders in our area doing this, but wasn't sure how that would work, especially with me being a listed agent (and therefore everything would need to go through my brokerage, and commissions paid out). Do you mind if I ask you a few questions?

- How are you doing this without a realtor? How did the buyer and/or the buyer's realtor even find your property if it wasn't yet listed for sale? 

- Have you received an official offer? I'm very curious what the offer would look like if the finishes aren't even selected yet and the home isn't finished. 

- Are you trying to close on the sale of the property before construction is completed or after? 

I'm guessing that if you're trying to close before construction is completed, then the real estate contract would be a set amount for what's already been completed and there would be an addendum to attach your construction contract for the remainder of the project, right? In which case, if the construction contract is part of the real estate contract, then I'd assume the buyer's agent would get commission based off of the final total. 

I see that! You seem like a really great resource. I will definitely touch base, thanks so much for the offer. :) 

Just took a look at that website and it does seem a bit helpful. Thanks for sharing! The glossary of terms is certainly helpful. The accelerator sounds cool, but is WAY too big of a commitment for me at the moment. As I said, I'm just dipping my toe in and wanting to understand a bit more. I definitely don't need to become a "CRE Modeling Pro".