How to Make Money Building Spec Homes in Texas

Texas is leading the country in home building, but we’re short more than a half-million houses from what’s needed.

Home purchases won’t be going away as millennials are continuing to buy homes.

In short, housing supply is not keeping up with demand.

Demand is through the roof! 

There’s a huge market for speculative or “spec” home building.

A spec home is built by a general contractor/builder with the purpose of resale.

You’re speculating that the home will sell after being built.

Spec home building is a great way to make a profit in the real estate industry.

Increased competition with fix/flip deals can reduce the “spread” or profit, while driving up the costs for the investor.

Another benefit is that it seems easier for spec builders to find private money to use for spec builds, compared to flips. That’s not always true, but it depends on the deal.

With spec building, you start with a clean slate as you’re building a house on raw land. There are no pre-existing issues with the building and you can design the home as you would like.

Dealing with fix/flips can mean confronting the chance of unforeseen issues with the property or repairs costing more than anticipated.

You can also aim to fill a particular niche. Some spec builders focus on “starter” homes for new families or catering to wealthy people who want to build on a lot and pay cash.

It’s important to recognize that much of your profit comes from the initial lot purchase. You have to make sure that buying the lot is a fantastic deal.

If you can, ask experienced builders and investors for recommendations on contractors. Here is a great Facebook group to connect with like minded construction and real estate professionals.

Do your research on the local market. Consider employment factors.

What companies are in the area? Where do people want to live?

What is the absorption rate (properties listed vs. properties sold)?

If the absorption rate is above 50%, you should do just fine.

Consider that the average sales price for newly built homes must support a new build project.

Know how long homes take to sell in your market. Be prepared for what buyers want in their home and are wanting to pay for.

Get familiar with the city’s restrictions and requirements.

If you’re familiar with fix/flips and are looking to get into new construction builds, use your previous knowledge. Keep that back-up plan in your pocket.

It could make more sense to build a spec home, instead of rehabbing a property.

Another important factor is understanding how to get financing.

Having a flexible hard money that can get you funded in 7-10 days can be the difference between you purchasing the lot or your competition taking it.

A great hard money lender is worth their weight in gold.

If you’re doing a new construction spec build, feel free to contact Aaron Trevino with Streamline Funding.

We’ll help you close in 7-10 business days.

To see if you qualify, feel free to direct message here on LinkedIn.