“Your Mind Is A Weapon of Mass Construction, Use It!”
I grew up in small town Central California. A town where before Google, Apple, and Amazon were part of our daily lives (both through function and location), you could easily mistake for a town in rural Tennessee. As I grew up, my favorite orchards and fields to run through were leveled for shopping centers, big box stores & you guessed it, spec & tract homes. I’ve took part in & watched countless homes being built in my community, not with a certain buyer in mind, but to appeal to the masses. This is not necessarily a negative. I’ve seen many contractors rise and fall, although I don’t claim to have all the answers, I do see some major shortfalls that have led to either a bad reputation or just a poorly thought out home. Building a spec home is not like building a custom home & if you are just getting into this market it is nothing like performing additions/remodels. These specific points we will discuss today are just some of the major points you should keep focused on throughout this journey.
1. Don’t Just Try To Meet Numbers!
Of Course, you aren’t altogether building homes just to beautify your community and bring joy to the homeowner, these are the blessings that come along with the job and get you excited to wake up in the morning. You work to put food on the table (is that too blunt?). So, of course you need to be researching comps, profit, & all of the costs that come along the way. Those numbers are crucial! The numbers we’re talking about are square feet/meters. I see it on too many projects where the builder is so concerned with hitting a certain mark that they start wanting to add space where it shouldn’t be. Of course, sometimes there’s places where you can add usable square footage in a cost effective way and that’s a plus for everyone! But sometimes when I am designing for my clients they will want to add just to meet a quota or to match the house across the street. Buyers are too smart and too educated nowadays to be tricked by this. You going from a 2,450 s.f. home to a 2,500 is not nearly as important as creating a functional space where the buyer can fully utilize the home and property. I’ve seen so many well thought out floor plans that are 2,200 s.f. that I would much prefer to a 2,700 s.f. home that is full of “fluff”. Ultimately, someone has to walk into this home and buy it, so it might look good on the listing but the product has to deliver once they see it and empty calories are not always the answer.
2. Allow Some Room To Breathe!
This point is especially important when you are doing spec homes on limited independent funding or with fixed funding. Don’t go into a project expecting to just get by on the skin of your teeth, especially when you are just starting. If that’s your expectation, you will be stressed the entire way through, not turn a profit ultimately and probably make some enemies along the way. (In the business and in the home! Construction wives know what I’m talking about). You cannot expect everything to go smoothly, It will never work that way. Construction is not an industry of perfection and aiming for that will only leave you disappointed and disgruntled. Allow some room for issues to come up. A 3-8% buffer depending on the specific project (after your hoped for profit margin) is healthy. If you don’t eat into you can be grateful, and if you do than it was a planned expense that you can stomach.
3. Count The Cost
Luke 14:28 is one of my favorite scriptures “Who of you wanting to build a tower does not first sit down and calculate the expense to see if he has enough to complete it?” We’ve already talked in depth about total cost. When you go to trade in a car you don’t fix up every cosmetic defect hoping to receive adequate compensation back. Equally, you cannot go into a project with finishes and design decisions that will not provide a return in line with the cost, diligent calculation is key. Your aim should always be to create a quality home within a well budgeted cost/reward system and every line item in your Project Estimate should reflect that. This is not your dream home, it is an investment. Don’t give up quality in this pursuit tho, which brings us to…
4. Overbuilding
We all want the show home that turns heads and benefits our reputation in the community as a craftsman but if that’s not the neighborhood or location you’re building in, it may be counterproductive. Many times when you see a home that is clearly more luxurious than any house within a 5 mile radius they will not receive a return. Now for a homeowner who will live and die in that home, the cost is relative. As an investment you can’t look at it that way. It starts slowly in a project “let’s go with the smooth coat, it’s only $–/s.f. more, lets go with quartz its only…” and before you know it you have a show home that you will never turn for profit & it won’t impress the people whose opinion you should value. Maybe you need to go with a quality laminate rather than hardwood, granite rather than quartz, dash instead of smooth coat stucco. You don’t have to give up profit, taste, or practicality to create a quality design. You may not be the talk of the town but you will have a home you can be proud of and make a profit you’re be satisfied with.
5. Create An Exit Strategy
An exit strategy is important in any investment, whether it’s stocks, a business, or development. This is going to rely heavily on the price point at which you have listed the home. Talk to your realtor so you can sell your project in the time frame you feel comfortable with to avoid an uncomfortable situation of incurring the infamous carrying costs.
Over 30% of spec home builders are out of the business in the first 4 years, we hope you can avoid being one of them by implementing these tactics. Be wise in your preparation, research, finances, & have a solid crew/advisers. This will put you in the best position to take advantage of this lucrative venture.
South Bay Design 