Speculative building is a hot topic these days. But what exactly is it and what are some secrets the pros use to make money?
First, for the uninitiated, let's look at what spec building is. Spec home investing involves building a single-family or multi-family property without having a buyer lined up already. It can be risky — spec builders build without knowing for sure if they'll be able to find buyers and turn a profit, partly because they're at the mercy of the market and a wealth of other factors.
That risk can really pay off, though. Spec housing development doesn't have as much competition as, say, flipping. Also, instead of the surprises that most flippers have in store (termite damage, mold, etc) you're able to start with a clean slate.
Mitigating the risk of spec building
Thankfully, there are some ways to mitigate the risk. Here are four secrets the experts say will help you do just that:
- Check, double check and then check again. The numbers don't lie: in most spec building projects, much of the profit will come from the lot acquisition. So double and triple check that the lot is a good deal.
- Know the market backward and forward. If you're considering getting into the spec building game, research may be your most valuable ally. Learn the area's absorption rate (properties sold vs. properties listed). Learn the employment factors for the region. Learn what homes are selling for and how long they're taking to sell. Learn about your competition. Essentially, learn everything you can before taking the plunge.
- Choose wisely. Becoming a wise spec home investor means choosing your allies carefully. Shop contractors carefully and ensure you've got one you can trust and one who has a long track record of building quality properties.
- Get the right funding. You don't have to use your own money to get into the business. In fact, if you find an unbeatable deal and have your ducks in a row, you wouldn't want to miss out on it because you don't have the funds. And don't think that less-than-ideal credit or past problems mean you can't get funding.
Getting funding for spec home investing
As we mentioned above, having bad credit, a poor history, or low funds won't necessarily prevent you from getting a loan for spec home investing. A bank loan? Perhaps. But hard money lenders use collateral rather than credit scores and bank account numbers to determine eligibility, so it's all within your reach!
Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com
Dennis Dahlberg Broker/RI/CEO
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22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
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