Building speculative homes, or “spec homes,” can be a rewarding way to grow your construction business, but it’s not without its challenges. Success requires a solid understanding of your market, a discerning eye for lot selection, and the ability to take calculated risks.

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In a recent episode of Builders, Budgets, and Beers, we sat down with Scott Turner, owner of Riverside Homes, and Amanda Trevino, an Austin native realtor.  Together, they shared invaluable insights on mastering spec building and navigating the complexities of the market. Scott has shared valuable insights with us before, don’t miss his earlier episode, The Three Pillars for Successful Spec Home Building, for more foundational knowledge.

Knowing Your Market

Before you even think about breaking ground, you need to know your market inside and out. Start with the basics. Research permit activity and inventory turnover rates in potential areas. High turnover and steady demand signal good opportunities, while oversaturated neighborhoods might indicate that competition is too high. Keep an eye out for infrastructure upgrades, like new transit options or retail developments, that could boost the appeal of certain locations.

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Amanda encourages builders to research construction activity, permits, and inventory turnover rates to identify high-potential neighborhoods. “If you can find some infrastructure that is making a location desirable… that’s always going to be valuable,” Amanda advised.

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Another critical factor is the price ceiling. Every neighborhood has a limit on what buyers are willing to pay. Before starting a project, analyze comparable sales and ensure your planned build falls within realistic price expectations. Overbuilding (even with high-quality features) can leave you sitting on a property that’s tough to sell.

Evaluating Lots

Not all lots are created equal, and overlooking the details can lead to costly mistakes. When evaluating lots, consider the practical aspects, such as deed restrictions, setback requirements, and the surrounding environment. Even lots in the same neighborhood can vary widely in terms of potential.

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Scott shared a personal experience where his second spec home was built on a lot with a busy bus stop, a detail he overlooked that ended up impacting buyer interest. This anecdote highlights the importance of thoroughly vetting every lot and considering how its location might affect future sales.

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Avoid "fringy" lots—those that might seem like a bargain but come with complications. A lot near a busy intersection or awkwardly shaped can limit buyer interest, even if it’s priced attractively. Those drawbacks are amplified when you’re trying to sell the finished the product. Take the time to visualize how the home will fit on the lot and how buyers will perceive the location. A lot’s appeal is just as much about its environment as it is about the build itself.

Taking Calculated Risks

Spec building is a balancing act between bold vision and practical restraint. Success requires informed decisions while leaving room for creative problem-solving.

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1️⃣ Stick to Price Ceilings

Before breaking ground, set a firm understanding of your neighborhood's price range. For instance, if the highest sale in the area is $1 million, don’t expect to sell a $2 million home there, even if it’s the nicest house on the block. Build to match buyer expectations while keeping your costs in check.

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2️⃣ Align with Market Demand

Build what buyers want. Collaborate with designers, architects, and realtors to stay aligned with buyer preferences. Are buyers looking for modern layouts, energy-efficient features, or homes with a dedicated home office? Cater your designs to fit these needs and trends to improve your chances of a fast sale.

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3️⃣ Know When to Say No

Sometimes, the best decisions are the deals you don’t take. If a project feels too risky or doesn’t meet your criteria, walk away. It's better to wait for a project that fits your business strategy than to stretch your resources on a deal that doesn’t make sense.

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Spec building requires a strategic approach, but the rewards can be significant when done right. This complexity can be an opportunity and a competitive advantage. By focusing on market knowledge, thorough lot evaluation, and calculated risks, you can confidently grow your business while minimizing unnecessary setbacks.

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