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Not a lot of people, particularly in my area, are thinking of building spec homes right now…but every time an area begins to grow, every person with two nickels to rub together comes out of the woodwork and wants to be a ‘builder’. In fast growing areas with the right design, just about anything will sell, but like anything else, it’s a business, and should be treated as such. After 15 years in the business, I’m still truly shocked that so many builders don’t treat it as a business. So, for those of you who want to get into the spec-building business, which can be quite profitable, I’d highly recommend Profits in Building Spec Homes by William Maddox.
As you can imagine, the book is about…building spec homes, and it takes you the various decision making processes that most people SHOULD go through in order to be successful; selecting the right area/neighborhood, selecting the right design, drawing up contracts, budgeting, etc. The book is dense with forms, processes, and tips, and it’s very well written and easy to read in a step-by-step format. Most of it is quite obvious stuff, but I do want to point out some things I picked up that I thought were provocative/important:
[ame="http://www.amazon.com/Profits-Building-Homes-William-Maddox/dp/0934041938/ref=sr_1_1/102-6463481-0475360?ie=UTF8&s=books&qid=1190898791&sr=8-1"]Amazon.com: Profits in Building Spec Homes: Books: William A. Maddox[/ame]
As you can imagine, the book is about…building spec homes, and it takes you the various decision making processes that most people SHOULD go through in order to be successful; selecting the right area/neighborhood, selecting the right design, drawing up contracts, budgeting, etc. The book is dense with forms, processes, and tips, and it’s very well written and easy to read in a step-by-step format. Most of it is quite obvious stuff, but I do want to point out some things I picked up that I thought were provocative/important:
- This is a business, and it really is a tough business. Unlike other manufactured goods, a spec home might not be sold before it’s created, making it one of the most expensive ‘purchase’ items for people, and since most builders aren’t large companies, the risk can be enormous. To mitigate those risks, everything from contracts and purchasing and design must be run in a business-like manner.
- The most important item is the schedule. It’s also generally the most lassiez-faire item for most builders. Schedules control profit and the velocity of your money; they control whether the project will be successful or not, and they control how much money you can make in a year. A house can be built in six months, or a month with no change of quality, meaning you can build 2 or 12 in a year. Given that the average here used to be about $40K profit per house; which would you rather make? 480K in profit in a year, or 80K?
- The lowest bidder IS the key. Yes, yes, yes; the ‘common wisdom’ has always been to never take the lowest bidder, as that automatically leads to poorer quality. But again, this is a business decision; each bidder has the exact same specifications and details they’re bidding on; quality, materials, labor, timelines—it’s all in there. You want the lowest bidder that will satisfy your specifications. Paying anymore than that is lost profit.
- If you have an interest in this type of investing; building spec homes, now is the time to investigate, start making contacts, and start figuring it out. Again; when the market is good, everyone is involved, and newcomers to the market play catchup until they’re generally left holding the bag. Good builders (and good businesspeople in many areas), don’t wait until popular money-making trends are splashed on headlines; they do their work to be poised to take advantage of the upward trends.
[ame="http://www.amazon.com/Profits-Building-Homes-William-Maddox/dp/0934041938/ref=sr_1_1/102-6463481-0475360?ie=UTF8&s=books&qid=1190898791&sr=8-1"]Amazon.com: Profits in Building Spec Homes: Books: William A. Maddox[/ame]
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