When it comes to investing, you should know that building a home from scratch can help you earn a profit. However, you should understand a few things beforehand.
As soon as you click here, you will learn how to find the best construction company for home building project.
In the US, housing shortage is affecting people all around, which is highly important for new homes.
Therefore, you can invest in real estates by choosing spec homes, especially if you live in area with high demand and low supply of households.
You can make profit from this particular investment, but you must create a strategy to help you determine whether you should do it or not.
It is important to understand whether you should start building a spec house or not.
What is a Spec House?
You should know that spec house means that you are building a home with an idea to sell it afterward for a profit. It is effective option that resembles flipping and fixing houses, which is another important aspect you should understand.
Compared with other real estate investments, this one is not a long term, which means your main objective is to build it to sell it as soon as possible.
Reasons to Build a Spec Home
We can differentiate a few reasons why you should build a custom house from scratch instead of renovating an existing one and sell it afterward.
- Predictable Expenses – When building a spec house, the chances are low that you will be surprised with additional expenses compared with flipping. You do not have to think about repairs and hidden issues you need to handle. Instead, you will find construction company that will offer you a price you have to pay for the entire project.
- High Profit Margins – If the things go in proper direction, you will get higher profit margins compared with other real-estate investments.
- Low Upfront Expenses – If you wish to start with a spec household, you must pay for the land, and contractors throughout a process. On the other hand, for flipping a home, you will need money to purchase a home before you start with renovations.
- High Appeal – In the real estate world, newly-built households are rare and in demand. Therefore, they will be highly appealing and attractive options to buyers. Most people prefer spec households because they come with specific designs compared with regular ones they can find on the market. Generally, they are appealing for people that wish to live in new neighborhoods, but wish to build and design themselves.
- Low Competition – Flipping homes is known practice due to numerous popular TV shows available on the market. That is why numerous investors choose to find flipping options. When it comes to creating spec houses, you should know that competition is lower, which means you will find more profitable opportunities compared with others.
Potential Disadvantages to Remember
We cannot provide you a formula that will help you invest in real estate and obtain profit you wanted in the first place. In some cases, it will not work the way you planned, which means you should prepare for that outcome.
Therefore, before you decide to construct homes for selling them, you should understand potential disadvantages.
- Financing Issues – In some situations, it is more likely you will get a loan to flip a particular home instead of building it from scratch. In the last few years, lenders have started giving opportunity to flippers, which means you are more likely to get approved. On the other hand, house construction is challenging to finance, especially because you will need a high credit score, twenty percent upfront and proper experience beforehand.
- Timeframe – The average flipping will require three to four months before you can resell it. However, spec house comes with higher timeframe, which is approximately twelve months or a year. The length depends on numerous factors, which means you will have to wait to construct everything before you can earn profit. Of course, the amount you will get is more significant than flipping, but you will still take high chances.
You should enter this link: https://www.iccsafe.org/products-and-services/i-codes/2018-i-codes/ibc/ to learn more about building codes you should follow.
- Sales Risks – It is possible to be unable to sell a spec house after construction. Besides, you should add other expenses including loan payments, insurance, property taxes and many more. A few months of waiting can cause severe expenses that will affect your profit in the future.