How Do Most Builders Currently Spec a House?
First as a spec builder, you identify several vacant lots or under-improved properties. Hopefully you can finance them or purchase them with cash. Two to four months later you are ready to pull permits and begin construction. You then take out a construction loan speculating on what the market and potential sales price will be six months to a year down the line. You pay the closing costs for a construction loan, as well as the carrying cost of interest and taxes. You start paying costs the day you buy the property, and continue throughout the build and the marketing time required to find a buyer. You may also pay to decorate and furnish the property to use as a model. Once a buyer has been found, you pay interest and taxes until escrow closes. At this time, you finally get your cash back and receive your profits. Why is This a Problem for You, a Spec Builder? LIMITED CASH – Spec construction loans generally require 15%-25%+ down payment. Land loans can require as much as 50%. As a spec
