By Charles Bevier

In your career you've no doubt been forced to fire subcontractors who didn't perform as expected. Wouldn't you like to do the same to some of your clients?

That's what custom builder Peter Greenberg did when he decided to just concentrate on spec homes.

"Occasionally we'll build a specific design for a client, when we're forced to. But primarily we build spec. It's just a much more enjoyable process working for yourself rather than a client," says Greenberg, owner of Able Construction (Norwalk, CT), which turnkeys multimillion dollar panelized homes fabricated by Northern Design & Building (Hudson Falls, NY).

"We get to make all our own decisions and it speeds the process right along. We do between five to eight houses a year and these are between 4,000 to 6,000 sq.ft., generally in the $1.2 to $1.5 million range. We have had a great run and we hope it lasts a little longer. It's just a pleasure doing spec homes. We know the process so well that everyone can concentrate on building instead of all the hand holding and shopping of options that you have to do with clients, not to mention change orders."

Greenberg relies on a cadre of trusted real estate agents to find suitable teardowns in Connecticut's ritzier neighborhoods, with the same agent earning the right to market and sell his creation and land a hefty commission. "Buyers do get to choose paint, tiles, a few finishes. But overall, doing spec allows us to lead sane lives. We get home at a reasonable hour," Greenberg says.

Is It For You?
As you are probably aware, building a spec or "speculative" home (or "quick delivery homes" as some developers now refer to them) means you acquire the land and build a home with the hope that a buyer will purchase it when you're finished. Obviously this entails more risk, since there's no guarantee how fast a home will sell and you'll be paying the interest until it does. But with the right approach to lot location and design, this business can also be more rewarding, especially if you track your budget like a champ and ensure you dial in your profits, say veteran spec builders.

Know Your Local Market
To a large degree, your spec success will be determined by the health of your local economy. What's a "no-go" situation? If one or two large employers just pulled out of town and you're targeting the first-time or move-up buyer.

Another key indicator of a go or no-go situation is the current supply of housing on the market—this means all homes for sale, both used and new. Check with your realtor friends to determine the exact supply and the rate of sales to determine the average length of time it takes to sell a home. Can you afford to carry the interest for that time period?

Know the type of buyer you are targeting with this spec. Is it a first-timer, move-up, 20-something or active adult over 50? What is the prevailing average income versus average home sale price?

Plug all this information into your business plan, advises David Perlman, president of Philadelphia Residential Development Company, which builds and sells more than 50 spec modular townhomes in Philadelphia annually using Signature Building Systems (Moosic, PA) as his supplier. "We know our local market pretty well—we have to. Most of our units were selling for $220K four years ago. Now we're in the $450K range and that's for an average of 2,500 sq.ft."

What's Your Motivation?
Be clear about your motivations for doing a spec home, advises longtime log home builder Peter Rosi, owner of Jim Barna Log Systems Midwest (Brookston, IN), who just completed a log spec home in his market and has a half dozen others pending in new log home developments across the Midwest.

Is your motivation to make more money, exhibit a new type of building system in your market, provide an example of a fresh design, or jump-start sales in a new subdivision or absorb the last few lots in a developer's subdivision?

"Let your motivation be your guide because that will help you make all the decisions that are needed to succeed. It's kind of like getting pregnant—you can't be 7/8ths pregnant. If you're going to do it, go all the way," Rosi says.

Can You Pre-Sell?
If you're tackling a larger, multiunit project, consider investing in a sales center to pre-sell before you even move dirt. Resort developers use this strategy particularly effectively, says Richard Elkman, president of Group Two Advertising with offices in Philadelphia and Delray Beach, FL. "But you have to invest in your sales office. Make it luxurious, with strong collateral sales material, to tell a lifestyle story and generate excitement. Don't sell from a trailer on site if you can help it. Get office space near to the site."

Plan Your Schedule
Your schedule and your targeted market should also match. If you're building a two-story colonial for a family with young children, plan your schedule to have the home ready for selling by June, when many families will be making the jump to another home and school district.

Pick Your Building System
Each system we profile in this magazine can bring a lot to the table when it comes to building spec. Manufacturers can provide ready pricing on a design that's good for many months, whereas your local lumberyard won't guarantee pricing beyond the phone call to order materials. Plus, each system has its own market angle. Modulars can be turnkeyed the fastest, meaning it can be on the market that much faster. Panel systems have the benefit of nearly limitless design. Log and timber style appeals to upscale baby boomers looking for rustic sanctuary. And SIPs are the green and energy-efficient system, which appeals to those who'd rather tread lightly on the planet.

Round Up The Dough
A number of national and regional lenders have programs specifically for spec homes. How much money will you have to pony up? It depends on the lender's program. IndyMac Bank, which has a separate program for systems-built homes, requires a builder with at least five years of construction experience (or a legal partnership with someone with five years experience) to invest 10% to 30% of the cost of the project, depending on their credit score, which has to be at least 680, says Shanna S. Sheppard, building systems channel manager with IndyMac.

"You can use land as equity in the deal, meaning the value of the land is same as cash," Sheppard explains. Other requirements of the spec program include only doing single-family homes (no multifamily, commercial or rental properties), a loan lending limit of $1.5 million and no more than four specs in the same market. Terms can be 12, 15, or 18 months and up to 90% of the project cost can be financed or an 80% loan to value (meaning the amount of the loan versus appraised market value).

Sheppard is willing to help builders with their business plan. For details call 866-791-1665, toll free.

Right Location
The right location and lot price are key to making your spec project appealing to your targeted buyer, advises Barry Altman, owner of Quality Crafted Homes (Southampton, NY), aÊdivision of Custom Modular Homes of Long Island, which builds multimillion dollar homes crafted by Haven Homes. The best location—with the lot open to views, access to open space, parks or other amenities—will undoubtedly cost more than another, less desirable location. But in the final analysis, the costlier lot will actually save you money because you won't have to pour more costly features or square footage into the home's design to compete against the better location, Altman advises.

Delightful Design Needed
One can't underestimate the importance of a good design to help spur the sale of your spec. Paul Foresman, director of business development at Design Basics (Omaha, NB), recommends builders put themselves into the shoes of their primary decision maker—which is most often the woman. "Mentally work your way through a plan and anticipate her needs, see how the home will live through her eyes. Changes or upgrades need not be expensive to make a huge impression and make your spec home stand out from the competition's," Foresman says. His suggestions include:

• No walk-through laundry room from the garage. "Today the entrance off the garage is the primary entrance to a home. In our focus groups we've discovered women really don't like the laundry room located here, where often laundry has not been put away yet."
• Add a medicine cabinet in the master bath that hides a retractable makeup mirror that lights up. "She loves it for putting on makeup, he'll love it for shaving."
• Include Jack-n-Jill Baths with separate shower area between the kids rooms, to offer privacy for blended families.
• Offer more storage, wherever you can work it into the design. "We just have more stuff today."
• Create entertaining spaces, whether it's a home theater or plenty of space for cooking for guests.
• Provide a space for destressing, whether it's more space in the master bedroom or a yoga or exercise room.
• Install convenient features, such as a pull-out garbage can under the kitchen sink or a tilt-out drawer by the sink that stores sponges and soap. "These little things can add up to a big impression with women buyers."
• Demonstrate these items when showing the home, otherwise the buyer will not know they exist or perceive their value in their daily life.

Stay On Budget
Know all your hard and soft costs going into the project and then track them weekly to make sure nothing is out of line with your projections, veteran spec builders say. Only by knowing your numbers inside and out will you be able to price your project and pre-sell it. Make sure you include all costs, including your salary for overseeing the project, property taxes, title fees and transfer costs. Many of the builders interviewed for this article say they aim for a gross profit margin of 20%.

Sales & Marketing Strategies
Want to to create buzz about your project and increase media attention or foot traffic? Start a public relations campaign and invite members of the media to learn more about your building system. You can also:

• Team with other retailers by hosting a special event at the spec home, such as a wine tasting, nutrition classes or chef demonstration.
• Sponsor an "If I Could Build a House" contest in local schools. Display design entries in your spec home and give prizes for the best ideas (another good photo opportunity).
• Sponsor a charity event such as a 5K run to begin and end at your spec home, to benefit Habitat for Humanity.

Detach From Outcomes
If you've done your homework and attended to your budget and marketing, then you need to detach from the outcome once the home is on the market. Otherwise you can drive yourself crazy with worry, says Randy Stoddard, owner of Homes By Stoddard (Chesaning, MI)."Pay attention to health issues. I had a heart attack at age 44 and it was definitely stress related, since at the time I had the heart attack I had 21 houses going at the same time. My advice to other builders is not to be consumed with your work."

Reach Out To Realtors
Use realtors to help sell your spec. Just remember to build that commission into your budget, advises Jim Roberts, co-owner of Roberts Homes (Fond du Lac, WI), which turnkeys both modular and panelized home packages from Wausau Homes.

Building spec homes and reaching out to realtors have been two effective tactics for increasing their volume of sales, Roberts says.

"Some people don't want to wait to build a home or they've heard horror stories about the process. Or some buyers simply can't imagine what it is they're looking for. A spec home serves as an answer to all those problems, because it's ready right away, they can physically inspect it and there's no surprises."