Foreword by Ian Thompson, Editor
In today’s video post, Matt discusses why he doesn’t build speculative ‘spec’ homes anymore. In fact, he hasn’t since 2007. He discusses the builder’s perspective and also the potential purchaser’s perspective, both of which are very important considerations.
My businesses have been operating in the construction and building industries for over three decades in Europe and Australasia, and I am yet to see a group home-built house that I get truly excited about. In fact, I’ve just seen a decline in quality over the years as group home builders face some really tough supply chain ‘price gauging’ challenges, forcing most of these companies to use the cheapest possible materials for their construction and building code.
If you think about it, these builders never have to live in the houses they build, and they know one very important thing: customers buy on location, looks, and affordability, not quality. In fact, I would say 99% of house buyers wouldn’t even know whether the materials used in their homes are actually good or bad, whether they are healthy and perform well acoustically and thermally.
I’m not saying don’t buy a group home-built home. What I am saying is really do your homework on what you’re buying. Get a professional second and third opinion, and that’s not a real estate agent, by the way!
My experience would say that you can build a new home to a better spec if you have the right design and build team. Yes, you may need to wait a year or more to move in, but you will get a better house for the same money if you follow the rules.
Over to our famous Texan builder and producer, Mr. Matt Risinger – link in comments below.
Over to our famous Texan builder and producer, Mr. Matt Risinger:
Two Reasons I’ll NEVER Build Spec Homes Again
Introduction
Greetings, everyone! Welcome back to another insightful episode of the Build Show, where today we’re diving deep into the topic of speculative houses. In this eye-opening video, our host takes us through two compelling reasons why he chooses not to build spec houses. First and foremost, let’s talk about risk. In an ever-changing market, speculating on the future value of a house can be a risky proposition, especially in times of uncertainty like the present. Our host shares a personal story from the 2007 housing crisis that left him with a substantial loss and significant financial challenges. He emphasizes the importance of avoiding such risks as a builder. Secondly, our host sheds light on the lack of well-built spec houses in the market. When a spec house is built, the focus tends to be on the aesthetics and superficial aspects rather than the crucial elements like insulation, airtightness, and quality windows. The market primarily values the look and feel of the house based on comparables, often overlooking long-term durability and comfort. Instead, our host highlights the benefits of building houses for clients where he can prioritize their needs and ensure exceptional craftsmanship. So if you’re considering building a spec house, buckle up and get ready for an enlightening perspective. And remember, for more fantastic content like this, head over to buildshownetwork.com, where you can find Brian Euler’s innovative approach to speculative building. Don’t forget to subscribe and join us on TikTok and Instagram for additional updates. Until next time, happy building!
Video Transcript:
The build show today, I want to share two reasons why I don’t build spec houses. Let’s get going.
Okay, y’all, a little truck action today. I’ve been thinking about this, and I felt like this is a video that needed to get out there. Speculative houses, meaning you’re building a house you don’t have another attached. You’re speculating on the market that when it’s done, you’ll be able to sell to make a profit. There are two reasons why I don’t do it. Number one is risk, and number two is it’s really rare to find a well-built spec house. Let me elaborate on this.
Risky, really no matter the market, but certainly in this market right now in 2023, there’s a lot of uncertainty. We don’t know where prices are going at the moment. We don’t know if the market’s going to go down or go up. It’s just there’s uncertainty. So if you’re building a spec, you need that spec to be able to sell for a certain profit, and you may or may not have that. The market may change, and when you’re done with that house, you may not be able to sell it for what you thought you were going to sell it for when you started a project. This is a risk that I would tell you is not worth taking as a builder.
Quick story, 2007 was the last time I built a spec house. I started a well-built house in a good neighborhood in Austin, Texas here, and I had about a million dollars into the build, assuming I was going to sell the house for about a million three. So I would have had a good profit in there, even after paying interest and my investor and all that kind of stuff. Well, you all know what happened. The market changed dramatically in that 07-08-09 period. I couldn’t sell the house. I ended up selling it after holding it and paying all those interest payments. I sold it two years after the completion, and I sold it for about a two hundred thousand dollar loss. So in other words, I sold the house for eight hundred thousand dollars, even though I had a million into it. And then it took me another five years to pay off all that debt. It was a brutal time in my life. I almost went bankrupt personally. It did very bad things for my marriage, as you can imagine. Praise God, I’m still married, and I paid off all that debt in 2015. I’ll never do another one again, but that’s the primary reason why I would say stay away from spec houses. You’re much better off having clients have the financing on their build, where you’re the builder. You might make a lower amount of money on that than building a spec house in good times, but trust me, it is not worth the risk that’s involved.
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Number two, this is also a big reason for me. When you build a spec house and you put that house on the market, which I did a couple of times prior to that last one in ’07, the market only bears what the market says the house is worth. Meaning, most people, when they walk through a finished house, especially a finished new home, they care about the countertops and they care about the layout and the look of the house. They could care less about the insulation, about the airtightness, about how good or not good the windows are. It’s really all about the looks and the feel of the house and whether it meets the comparables to similar houses of similar square footage that have sold in the area, both new and resale.
It’d be like us saying, “Hey, I need to buy a car, and I’m going to compare the comparables to this new Chevy truck that I own that’s only a year old and has 20,000 miles.” Well, I’m going to compare that to Chevy trucks from the ’90s that are also in the market because they also have a steering wheel, they also have a stereo system, they also have four wheels and can tow 15,000 pounds. Well, that’s a totally unfair comparison. This is a whole different league of durability and reliability and comfort and all that. But yet, the market, when it comes to houses, doesn’t take any of that into account.
So if you want to build good houses, it’s really rare to find a well-built speculative house. On the other hand, when I talk to my clients, I can ask them what they care about, what’s important to them. I can make sure that that house is going to be well built, both for their sake and for mine. So those houses won’t have problems later. They will be comfortable, resilient, and durable. They won’t have issues 5, 10, 30 years down the road. I could do that when I’ve got a client in front of me who is going to pay that bill. It’s really hard to do it when you don’t know who your client is.
Guys, there’s a lot more great content just like this over on buildshownetwork.com, and I would say that there is a builder who does speculative on Build Share Network, but they do it very differently. Pioneer Builders, Brian Euler, is one of our contributors. I highly recommend you go check out Brian’s content on buildshownetwork.com if you still want to build speculative because he does it very differently than most builders. And if you go watch his videos, he’s a really smart second-generation builder. I’ll put a link in the description to buildshownetwork.com in our newsletter. Otherwise, hit that subscribe button. We’ve got new content here every Tuesday and every Friday, also on TikTok or Instagram. Otherwise, we’ll see you next time. Build you.
