ROI / Profit On Spec House

williefb

What kind of return do you expect on a spec house. I know that this is depenadant on how quickly it sells etc. To put it simply what % do you shoot for in relation of cost to build vs sales price.

Example - Cost of lot + building cost = $100,000
Selling Price - $120,000

__________________
Willie

bruno002

are you including the price of land in you estimate

ruskent

I would never take the risk to build a house for just 20k profit. In my area i think most builders make around 30%. They sell your average 3500 spec house for 500k. Runs about 200k for the house, 150k for a 2 acer. Then a 150k profit minus expenses. Most of these local cowboys only expenses are their big lifted F350s. Most local builders work out of there home, may have 1-2 employees and sub almost everything out.

So if you subed out less, you could make alot more.

mdshunk

My dad was a spec builder for a lot of years. His rule of thumb was sell two, build the third one for free. I guess that works out to about 33% profit? He built plain vanilla, bread and butter 3 bedroom ranches, with a basement and a carport. He only subbed plumbing, electric, and dirt work.

boman47k

.

????

mdshunk

That is to say, build the 3rd one with profits from the other two... no bank loan involved. He paid himself a salary all along, so the profits at sale were just rolled into the next project(s).

pre-reno

My uncle, did exactly the same thing. He built 3 homes used the profit from the first two to build the third one. Now he builds them with all his own money, He does all the dirt work and plumbing and my cousins do all the drywll. He does this in a smaller town in Oregon. The houses are around 1500sf, just plain ranch type homes.

williefb

How long ago? Do you know of anyone that is able to do this now?

__________________
Willie

mdshunk

He stopped in the mid 80's, only due to back trouble.

I work for 2 different guys who do this presently, and they seem to be men of leisure, so it must be working out.

williefb

That is quite impressive if they can turn numbers like the ones that you quoted.

__________________
Willie

mikesewell

Yeah.

__________________
Commercial construction

Sewell Construction

joasis

The set of homes we are starting this month will come in at 70k, with lot, and sell for 90....very, very plain, 1200 sq/ft + garage. I don't build subdivisions, I look for lots in older neighborhoods, cheaper, with utilities present. I can get lots in my town for 3 to 5k, and the worst case is having to demo an existing home.

The key here, to building in budget, and making a good return, is time of build, about 5 weeks, and keeping it absolutely simple...trussed roofs, no cut up walls, basic fixtures, etc, etc.

There is a book I suggest you find called "Building and Affordable Home"...cheesy title, but it is focused on value engineering, and the concepts work well..I have been doing this for awhile, and if I could keep help, and didn't have a solid commercial load of work, I would do nothing but this.

Here is something else I like to do....I use the same plan as much as possible, and if I can, I build side by side, flipping one plan for a reverse, and 1 crew frames 2 houses together...you would be surprised how much time you save by doing this...bids from subs are cheaper, since they are doing the same thing twice, no changes, and next to each other, or at least in the same block. I also just got a deal from a cabinet shop....$105 a ft for paint grade cabinets, if they do 2 homes at a time...I also use only paint grade trim, concrete countertops for the next set, and acid stained floors for the living areas...another cost saving measure.

And like MD pointed out, we do it all, except electrical, hvac, and plumbing....so I maximize my profit by using my guys without subbing, unless we flat cannot get there.

I have a custom we are starting this week, and as soon as I pour the footings there, I will start 2 specs, side by side...and if I can just remember to do it, I will take weekly progress photos...may be interesting. Funny thing, there is a video production guy who hit me up about making and marketing construction videos....I bet 1 showing how to actually build well, but inexpensively would be a seller.

__________________

mdshunk

That's 22%.... pretty darned close to the 1970's and 1980's numbers I quoted.

Infill building is the only way to get lot for a price you can build a value priced home on. The one builder I spoke of earlier has a relative that works in the courthouse that feeds him info on owners of "extra lots" in established neighborhoods. He make it a passion to approach owners of vacant lots in established neighborhoods, and offer to purchase the lot.

williefb

Ok here we go. I will sound stupid but please expound on the concrete counter tops and acid washed floors. I don't know what you are referring to.

__________________
Willie

joasis

Just stuff that is new to homes, and saves money. In the last year, I have done several concrete countertops...cost? $5 a sq/ft, beats hard surface countertops by $60, and they are a cool thing...they are gaining acceptance...just like taking a tile saw and scoring the living area floors into 18 or 24 inch squares, and acid staining and sealing...cost, a couple of hundred bucks, savings, a few thousand over carpet or cheap ceramic tile...and if the new owners do not like it, that can always carpet over it, at their expense.

__________________

williefb

Thanks for the clarification

__________________
Willie

thom

I gave up customs and additions/remodels several years back and went strictly spec. I should have done this years earlier.

I do quite a bit of the work myself. My houses are about 2000 square feet, sell for about $250,000. I;ve kept quite a few for rentals.

Specs are far less stressful, I believe I produce a better product, and are more profitable.

I do plans (and I'm pretty good at it, I've done custom designs for subs who like my house designs, doing one now for my framer), electric, paint, carpentry trim, tile. I have more time off, less stress, and am generally more satisfied with my life.

The tough issue is finanacing. I saved for years until I could do this.

joasis

Absolutely thom, I am seriously thinking about doing nothing but building specs...and I avoid anything custom, since customer input never is a good thing. These little spec homes I do are not offered for sale til they are nearly finished...the only think a buyer of one of my homes can pick is paint and appliances.

__________________

thom

Joasis, you put yours on the market earlier than I do. When my sale sign goes up, I have a certificate of occupancy. It is absolutely finished. The only choice a buyer has is the move in date.

joasis

We don't close til we have the certificate, and if needed, lender's final inspection, but I will put one in contract at 75% completion.

On another note, my wife said lets move to Albuquerque....she is originally from Windowrock, Az....so maybe someday...we'll get to hook up for coffee. Do you see an end to the building boom in your area yet?

__________________