Building speculative homes (or "spec homes") is no small feat. With all the risks and rewards tied into every project, successful spec building boils down to three key pillars: knowing your market, mastering your numbers, and securing the right investment.

In our recent Builders, Budgets, and Beers podcast, we sat down with Scott Turner, a seasoned homebuilder and real estate expert from Austin, Texas. Scott founded both Riverside Homes and Turner Residential over 20 years ago. He is the 2022 President of the Home Builders Association of Greater Austin and volunteers extensively with housing providers and other non-profit organizations. Scott shared his insights on how spec builders can make the most of these pillars. Whether you’re building your first spec home or your fiftieth, mastering these three essentials will help you navigate the world of spec building with confidence.

Understanding the Market – The First Step to Success

When you’re building a spec home, market knowledge is everything. You’re essentially betting on what buyers will want by the time your home is completed, so understanding what’s hot (and what’s not) in your local real estate market is critical.

As Scott put it, “You have to sell the house that you're going to build, so the most important thing I can say about doing a spec is you start with the sales price and work backward to the land value.” You need to know what your finished home will sell for and calculate backward to determine how much you should pay for the land and what your overall budget will be. This helps ensure you can turn a profit without overextending yourself on purchase costs or construction.

Mastering Your Numbers – How to Calculate for Profitability

Once you’ve got a handle on your market, the next critical step is crunching the numbers. Spec building requires meticulous budgeting from day one, long before any construction begins. If you’re not tracking costs carefully, the smallest oversight can quickly eat away at your profit margins.

As Scott emphasized, “You don't budget correctly or have overages during construction, that's a loss, not a change order."

Accurate budgeting includes accounting for potential construction overages ahead of time, material fluctuations, and any other unexpected costs that might come up. Having a solid pro forma that outlines your expected costs, profit margins, and financial projections is non-negotiable.

Securing the Money – How to Line Up Investors and Loans

Securing financing is the third critical pillar for spec builders. Whether you’re getting a loan from the bank or working with private investors, you need to make sure you have the capital lined up to fund both land acquisition and construction.

“It takes two to get the deal done—the builder and the money guy,” said Scott. He stressed the importance of having strong financials in place to attract and reassure investors or lenders.

How Adaptive Helps You Succeed in Spec Building

We learned from Scott that in spec building, success hinges on mastering the three pillars: knowing your market, running the numbers, and securing the right investment. With these in place, you can manage risk, control costs, and build profitable homes effectively.

Adaptive can be a key partner in your success by providing historical data on all of your various line items and past project financial performance, helping you project more confidently. Additionally, by having accurate project-level financials, you can provide transparency and demonstrate that you’re managing your costs effectively, making it easier to secure the funding you need.

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