Browse Forums Real Estate 1 Feb 17, 2009 11:31 pm I often hear of builders (or other tradespeople) building spec homes (ie. building a new home specifically to sell it straight away). My question is...
...is the building and selling profitable? ie. do the tradies only do it to give themselves a big job (as a brickie or electrician etc). and the income from that job is their profit? Or is the sale value of house more than the cost of land plus cost of building, even 5 minutes after the house is finished? I'm not a DIY type person. About the only thing I think I could do is paint (internal walls) and even that I think I would get sick of! I would be paying the excavator, the builder, the concreter, the brickies, the electrician, the landscaper, and so on.. none of it would be gratis or mates rates. The only thing that I would be doing is laying out the floor plan (the plans would need to be drawn by an architect/surveyor), signing the cheques and cashing the big cheque at the end. (And getting some more experience in the process.) I am lucky in that I could do this without getting loans/mortgages, so no paying interest on an unsold house at the end. I realise every market, every block, every design etc. is different, so I'm just after general comments, though if you have specific ideas or suggestions I'd be glad to hear them (of course)! Re: Building a spec home - not as a builder 2Feb 18, 2009 7:48 am Spec Homes come from the word “speculative”, and just in case you where thinking it is not from the word specifically.
It is similar to buying shares in a company hoping they will increase in the future. People have obviously made money by doing what you are suggesting but how much money if any you make in the end is a guess and therefore speculative. Think about owner builders for example possible what you will be when going down this line. They often build a house for themselves to live in for some years. Therefore they don’t necessarily run the build as a business to maximise profit. Usually the motivation is different. The question I would be asking is not whether or not you will make money rather the question should be how much? Are you better off putting you money in the bank or another type of investment and then get a part time job working 10-20 hours a week? I am sure you will make as much or if not more money this way. Most people don’t include the holding cost when building a house. Not as bad now with interest rates down, but land does cost a fair bit these days, and it doesn’t matter if you have the money in cash or not the holding costs are still there this because that cash if not used on the property could be used to generate income else where. When building a house it is not the money saving money making that pushes people along, the difficult project. However in saying that if you building to sell you stress levels will be a lot less as you are more prone to let things slide etc. On the down side property prices can fall and if they fall by 10-15% it would be very easy to go into negative territory. Re: Building a spec home - not as a builder 3Feb 18, 2009 10:19 am Thanks borg,
I always thought "spec" came from "specification"? Not sure why exactly :/ What prompted me to think of this: we built our first home 7 years ago, and are planning to build (for ourselves) in a couple of years time, a bigger house in a different area. However there is a vacant block two doors down from us (680 sq m @ $105k), it would be good practise in building, and we have the financial resources (currently in shares/cash) to build a medium sized home. By wanted to make money on it, I wouldn't be doing it as a profit making activity - I would be working full time in an unrelated field. I just want to cover what the money would make in a bank account or shares etc. I'm hoping in the economic crisis costs will be a bit lower and potential sale price will increase over time. Re: Building a spec home - not as a builder 4Feb 18, 2009 10:42 am I hate spec homes, they are so uninspirational, so plain basic with little thought or care put into them and are just there to makes $$'s and they bring down the estate IMHO. Hehe Now I've gotten that off my chest I'll move on with the issue....
I think a lot of builders do speccie homes as they will make lots of money, we all know there are massive markups in the building industry plus they get cheap/free labour depending on who does their work for them. I think this is how they make a lot of money for them, without being able to save on costs in that regard you may not make money on this project - with the property climate so hard to read atm there is a big chance prices will drop (how much noone knows). It may be a different story of course if you had lots of mates who were tradies or even knew a builder but if you are paying top dollar it may not be worth it. The other thing I would consider is that the building process can be incredibly stressful. I doubt we would build again and we haven't even got a slab so you don't want to go through all the stress, then have to worry about doing it again for your own house down the track. Finally, consider that land what increases in value, and the value of the building depreciates over time. Have you considered simply sitting on the land? Just another option to consider. ICK So glad the building is over, never again. Loooove our house, but still not quite sure it was worth all of the stress they put us through! Re: Building a spec home - not as a builder 5Feb 18, 2009 12:13 pm ICK I hate spec homes, they are so uninspirational, so plain basic with little thought or care put into them and are just there to makes $$'s and they bring down the estate IMHO. Hehe Now I've gotten that off my chest I'll move on with the issue.... I know what you mean. Since I currently live in the area I don't plan on doing that :) The block is an interesting layout (sloped, with a tree not far from the driveway entrance) so for a start I'll have to get an custom architecturally designed house, no "cookie cutter" standard house will really suit. Little things like network data ports throughout the house, artificial turf in hard to mow areas (strips), passive solar design including PV cells, and lots of storage. Quote: I think a lot of builders do speccie homes as they will make lots of money, we all know there are massive markups in the building industry plus they get cheap/free labour depending on who does their work for them. I think this is how they make a lot of money for them, without being able to save on costs in that regard you may not make money on this project - with the property climate so hard to read atm there is a big chance prices will drop (how much noone knows). It may be a different story of course if you had lots of mates who were tradies or even knew a builder but if you are paying top dollar it may not be worth it. I know a couple, so while I know they would do a good job, they aren't close enough mates to do it cheap. Quote: The other thing I would consider is that the building process can be incredibly stressful. I doubt we would build again and we haven't even got a slab so you don't want to go through all the stress, then have to worry about doing it again for your own house down the track. Since we built before and plan to build again (even after so many issues the first time), I don't think that'll be a problem. At least I know what to look out for! Quote: Finally, consider that land what increases in value, and the value of the building depreciates over time. Have you considered simply sitting on the land? Just another option to consider. My other option was to buy the land for our new home now (then build in a couple of years) .. I worry that if the value has increased in that time I will be tempted to sell it rather than build :-/ Re: Building a spec home - not as a builder 6Feb 21, 2009 10:17 am Chuq I often hear of builders (or other tradespeople) building spec homes (ie. building a new home specifically to sell it straight away). My question is... ...is the building and selling profitable? ie. do the tradies only do it to give themselves a big job (as a brickie or electrician etc). and the income from that job is their profit? Or is the sale value of house more than the cost of land plus cost of building, even 5 minutes after the house is finished? I'm not a DIY type person. About the only thing I think I could do is paint (internal walls) and even that I think I would get sick of! I would be paying the excavator, the builder, the concreter, the brickies, the electrician, the landscaper, and so on.. none of it would be gratis or mates rates. The only thing that I would be doing is laying out the floor plan (the plans would need to be drawn by an architect/surveyor), signing the cheques and cashing the big cheque at the end. (And getting some more experience in the process.) I am lucky in that I could do this without getting loans/mortgages, so no paying interest on an unsold house at the end. I realise every market, every block, every design etc. is different, so I'm just after general comments, though if you have specific ideas or suggestions I'd be glad to hear them (of course)! Yes it is profitable. I know people who make approx 500k a year doing so. There are a few I know that have built one house and a few that have built townhouses. The profit that they make depends on where, what etc A tradie will not go through all that just for work. I suggest that you check out the rules on owner building. You will never get a permit for subdivision or multi dwellings as an owner builder as it goes against the rules (being built for profit etc). Anyways the people that do this and are successful from my opinion and observations a) Have 2 mill in cash to fund their project b) Are DB-U (domestic builders with unlimited license) c) Do this on an ongoing basis thus retaining a team of skilled tradesmen at a much reduced rate than standard as they provide ongoing work. The truth is unless you have that domestic builders unlimited license, in my opinion profit isn't worth it. I have seen the profit margins between a builder and an investor. The investor is taking on such a project with profit margins under 20%. IMHO, not worth it unless you can make 20% and up. Re: Building a spec home - not as a builder 7Feb 22, 2009 2:26 pm Minx Yes it is profitable. I know people who make approx 500k a year doing so. There are a few I know that have built one house and a few that have built townhouses. The profit that they make depends on where, what etc A tradie will not go through all that just for work. I suggest that you check out the rules on owner building. You will never get a permit for subdivision or multi dwellings as an owner builder as it goes against the rules (being built for profit etc). Anyways the people that do this and are successful from my opinion and observations a) Have 2 mill in cash to fund their project b) Are DB-U (domestic builders with unlimited license) c) Do this on an ongoing basis thus retaining a team of skilled tradesmen at a much reduced rate than standard as they provide ongoing work. The truth is unless you have that domestic builders unlimited license, in my opinion profit isn't worth it. I have seen the profit margins between a builder and an investor. The investor is taking on such a project with profit margins under 20%. IMHO, not worth it unless you can make 20% and up. Thanks for the reply Minx. The part about the builders licensed confused me. I'm not planning on doing any of the labour myself - All I am thinking of is buying the land, getting the house built, and selling it. The only diversion from this plan may be to have a builder complete the house to lock up stage then get my own tradies in from then on. I wasn't aware a license was required - so long as the income was declared and any relevant tax was paid on profits. Perhaps when I said "spec home" I thought it meant something different to what it actually means! I thought it just meant a house when you intend on selling when it is complete? Re: Building a spec home - not as a builder 8Feb 23, 2009 6:07 pm Chuq Minx Yes it is profitable. I know people who make approx 500k a year doing so. There are a few I know that have built one house and a few that have built townhouses. The profit that they make depends on where, what etc A tradie will not go through all that just for work. I suggest that you check out the rules on owner building. You will never get a permit for subdivision or multi dwellings as an owner builder as it goes against the rules (being built for profit etc). Anyways the people that do this and are successful from my opinion and observations a) Have 2 mill in cash to fund their project b) Are DB-U (domestic builders with unlimited license) c) Do this on an ongoing basis thus retaining a team of skilled tradesmen at a much reduced rate than standard as they provide ongoing work. The truth is unless you have that domestic builders unlimited license, in my opinion profit isn't worth it. I have seen the profit margins between a builder and an investor. The investor is taking on such a project with profit margins under 20%. IMHO, not worth it unless you can make 20% and up. Thanks for the reply Minx. The part about the builders licensed confused me. I'm not planning on doing any of the labour myself - All I am thinking of is buying the land, getting the house built, and selling it. The only diversion from this plan may be to have a builder complete the house to lock up stage then get my own tradies in from then on. I wasn't aware a license was required - so long as the income was declared and any relevant tax was paid on profits. Perhaps when I said "spec home" I thought it meant something different to what it actually means! I thought it just meant a house when you intend on selling when it is complete? I suggest that you speak to HIA or someone like that regarding your plans. I'm sure for stuff like that a registered builder must be engaged for the duration of the project. The reason being is that unless you are a registered builder with a license you are unable to get builders warranty. If you plan to engage a builder until lock up they are only liable for structure. (Slab, frame, roof). Plumbing and all the rest of it would be your responsibility. If stuff goes missing it comes out of your pocket and you may have trouble when it comes to cert of occupancy and selling them without builders insurance. Actually, I suggest you speak to someone from the building commission as they will have more of an idea about it all. They are the ones that issue licenses, permits, make up the rules etc. Good Luck P.S what you thought was the meaning of spec home is in fact that. It means building to specification (i.e. building to working drawings) Re: Building a spec home - not as a builder 9Feb 23, 2009 9:30 pm Minx I suggest that you speak to HIA or someone like that regarding your plans. I'm sure for stuff like that a registered builder must be engaged for the duration of the project. The reason being is that unless you are a registered builder with a license you are unable to get builders warranty. If you plan to engage a builder until lock up they are only liable for structure. (Slab, frame, roof). Plumbing and all the rest of it would be your responsibility. If stuff goes missing it comes out of your pocket and you may have trouble when it comes to cert of occupancy and selling them without builders insurance. Actually, I suggest you speak to someone from the building commission as they will have more of an idea about it all. They are the ones that issue licenses, permits, make up the rules etc. Good Luck P.S what you thought was the meaning of spec home is in fact that. It means building to specification (i.e. building to working drawings) I see where I was confused now.. basically the thing is I have a neighbour who is an electrician, a friend who co-owns a data cabling co, a brother in law who is an AV/home automation installer, another friend who is a carpet/flooring sales guy... in other words I can probably get good deals for all these if I arrange them myself. A builder would probably have all his own people and may not be happy about the boundaries of responsibility blurring... I will talk to a friend who works at the HIA (yes I know someone there too!) and see what she says! Thanks again for the helpful info! Re: Building a spec home - not as a builder 10Feb 24, 2009 8:57 am borg Spec Homes come from the word “speculative”, and just in case you where thinking it is not from the word specifically. BTW I only just re-read this thread and didn't realise I used the word "specifically" in the first line of my post, I was wondering why you thought I would think that :-/ It was just co-incidence I said "spec home" and then used the word "specifically" later on! We already paid for somfy motors for the blinds. The quote above was purely for “pre-wiring” so the blinds company can install the motors and blinds. That’s why we… 5 16084 The HIA contract, in the term & conditions section states that "Commencment" is deemed when the drainage is started or the piers are dug or the slab is formed up (incase… 2 6113 I work with owner, he/she is my man on the ground and I instruct them when to visit the site and take photos and I have other tools in the bag. 4 15020 |