Scenario: Barry was a custom builder in a suburban market outside a major city. He managed to build eight houses a year and would have liked to build more, but dealing with his high-end customers was getting to him. He just wasn’t sure he could handle any more persnickety buyers.
Barry’s friend Charlie, a builder from a nearby town, suggested that he think about building spec homes. “I’m a custom builder,” Barry replied. “As bad as my clients can be sometimes, at least I don’t have to worry about unsold houses.”
“Not instead of your regular clients,” Charlie told him. “Do a spec house in addition to your custom homes—or instead of one or two of them if you’re stretched too thin.”
“How would that change things?” Barry wanted to know. “It seems to me that I’d have the worst of both worlds—still dealing with hard-to-please clients, plus having financial anxieties as well. No thank you … I’ll stick to what I know.”
Should Barry consider his friend’s advice?
Solution: Whether to expand a custom home business into spec building is something each builder has to decide for himself. There is some additional risk, although it can be managed by only building one or two spec homes at a time. If the market starts to get a little shaky, you can always cut back on the spec building and unload any homes in inventory.
Even with the potential risks, building one or two spec homes while building custom homes can have significant benefits both in productivity and profitability. They include:
