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Building spec homes as a real estate investment

On Behalf of | Dec 20, 2019 | Residential Real Estate |

The real estate market is booming in many places in California, and it may be tempting to build a spec house for people who want to make money from an investment. Where housing supplies are limited and many people are interested in newly built properties, there may be buyers lined up to repurchase a spec home almost as soon as it is completed. Still, there are reasons why some investors may want to consider different options when choosing the most profitable path in real estate investment.

Buying a spec house is similar in some ways to house flipping. Rather than remodeling or refurbishing an existing house to make it more marketable, investors have an entirely new home built for the purposes of quick resale. When planning the budget for a spec house, there are fewer potentially problematic surprises than with a flipped property. This also means that profit margins may be higher as people interested in buying new homes may want immediate delivery without needing to hire contractors and wait for construction. Costs may be lower at the beginning as well because investors start with a land purchase rather than buying an already valuable home.

However, it can be more challenging to get financing for building a spec home than for flipping an existing home, especially for newer real estate investors without a strong record of success. In addition, there is a longer timetable for investors to be able to recoup their costs because it takes around a year to build a new home. Of course, even after that, it may take some time to sell the home.

There are a number of ways that people can make a great income from real estate investments. An attorney may provide advice on negotiating contract terms for buying, building or selling residential real estate.