Two Reasons I’ll NEVER Build Spec Homes Again

Bryan's video on leasing unsold spec homes:

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[victorvazquez]

The main reason homeowners focus more on looks than quality build is because the average homeowner only stays in the home for 5 to 8 years. I am currently in planification phase of my "Forever home" and my main focus is quality build. Since the plan is to live the home for 20 to 30 years, spending more for quality pays off later. I don't want to be spending time, energy and money on maintenance contracts because I originally went with lower quality materials.

[cjankowski]

Hi Matt. As an old builder with over 30 years in, I completely concur with your comments about 3 minutes in. Over the years I have built about a half a dozen spec homes, all very high quality in every aspect, especially energy efficiency. State of the art materials and low energy bills. Energy conservation aficionados and engineers came to my open houses. They loved my product but did not buy! I learned the hard way that a spec builder must build to the buying masses lowest common denominator quality wise and the highest common denominator from an interior decorating standpoint. I made money on all of them but certainly not enough to justify the hours, dedication, research and risk. Great topic. I really love all your work!!

[exrezcnm]

Years ago when I was a carpenter the builder I work for go around and talk with as many real estate agents as he could. The purpose of that was to find out what people were looking for in new homes. by doing this he eliminated a lot of his own personal biases as to what he thought the public would want. It still makes a lot of sense in this day and age and Market.

[wjthehomebuilder]

I build mostly spec homes. Matt is spot on. It's an uphill battle showing why my sub 2.0 ACH houses with triple pane windows, an ERV and a HERS rating is better than a "standard" spec house. Sometimes I wonder if what I'm doing ever matters. But I can't "un-learn" this stuff. So we keep pressing on!

[MichaelChow-yiuk]

My experience is that if your spec house looks like every other house, then you are quite correct. People won't look past the countertops and closets. However, being an architect who builds houses that have a unique style, I have never had a problem selling a spec house. People want something that is unique; design matters. In terms of interior features, I have surprisingly found that soundproofing is a great selling point. Having a stereo playing loudly in one room and not hearing it in other rooms seems to impress people. I often build with two layers of 5/8" sheetrock with green glue between the sheets, particularly around bathrooms and the "teenager wing."

[bradfriedman]

I’m a homeowner that GC’d my first home, albeit a 5000sqft custom home . I had never built or managed any home before. Here is my takeaway. Most of the people I hired were used to building at a low standard, so dealing with me was a shocker, especially when trying to follow Matt’s principles. In the end, I learned that if I really wanted to do it right I had to do it myself. The standards of the building industry are extremely low., and almost everything is driven by a quick profit and as fast as you can do it mentality. If I had to do it all over again, I wouldn’t of done it, because it was truly a complete nightmare. But in the end, I’m proud of the level of detail I insisted on and the home functions very well and is very efficient. The most important stuff for me is all the stuff you don’t see.

[johnborton]

I've built many (more than 30) spec homes. Matt you are so spot on about what people won't pay for. I couldn't get *any* money back out of even 2x6 walls with more insulation to save money on utilities. This was the Mojave Desert and extra insulation would pay for itself in less than 2 years against air conditioning bills. Nope -- they wanted granite, crown molding and a bigger walk in closet.

Having said that, give me spec anytime over custom -- too many indecisive clients. "Can you move that wall 4" over ... I didn't think it would look this small", etc.

[johnmakbuilds]

I’m a builder in NY. I build spec, modular, and now focusing on multi family. I will say that after seeing this video, I believe a HUGE part of your success is your integrity. The fact that you paid your debt after 2008 crash and didn’t walk away or file bankruptcy like most other did, shows your true integrity. I too went through loss and fought through it at that time. I was lucky to not have debt but I lost a lot of money until I realized I needed to regroup. I hope you get to see this and congratulations on all your success.
-John Makovic

[j.mieses]

This channel is Gold. I am Architect and I watch all your content. I do not do residential that often but the information you provide based on your own experience is great. Keep it up!

[DanSme]

Brother…we feel your pain. My father (DOB:1920) built specs for 35 years in Colorado after WW2. As a vet, he smoked and drank too much, plus the stress killed him at the young age of 59. I paid attention to his challenges and yes market risks can be huge. How he solved the dilemma, is he settled into custom builds in the multi-million dollar range. There was ample profits at that level to cover various risks AND profit. He once said, “Whether, $100, 000 or $10 million, you still have the same call backs and upset wives that something…isn’t “right.” 😂

[joelwatts]

I’m a builder and only build spec houses (or rentals for my own portfolio). The difference is that I’m building one at a time, in an area with a lot of available infill lots, and I’m building a house that has been selling for 350k, not 1.5M and have a lot of wiggle room in my sales price and could drop the price 25% if needed. Of course, I’m not building the quality of house that Matt is, but it’s still a good first or second house that people can afford. I also was building specs up until 2007, when I sold the last one, and got out of the business because it was an obvious bubble in my area. To me the risk is worth the reward and I don’t have to deal with buyers, change orders, etc.

[tmc]

I also lost almost everthing in '08. Listening to your story brought back so many rough memories. As a general Contractor, I love your reasoning on specs. Keep the great videos coming!

[joemartino]

Even worse is flipping a house. The temptation to cut corners, overlook real problems and strictly focus on cosmetics is too great. I would never survive in a business like that because if I see a problem I must fix it and fix it well. That almost always means little profit potential.

[tommartin]

That a great chat Mat. For me when I was building years ago, I just hated custom. I was a hands on contractor. The stress of all the changes, babysitting clients while I was physically working was just to much. To drop my tool belt and put on a pair of Dockers and sub contract everything out was just not appealing to me. I made five times more money building one good speck house or rehabbing a older home than building custom. And I slept like a rock at night.

[RobbieSongwriter]

Had a very similar experience in the same timeline. I built a HIGH quality house in an UPscale neighborhood in Orange County. Just as I was finishing, the market went soft, and then in 2008, the wall street melt down made it impossible for even the most qualified buyers to get a jumbo loan. I lost almost everything. You made the right choice to only build with "other people's money", for exactly the reasons you mentioned. Never had a problem educating a client about reasons to build quality, but like you said, when it's already built, the uneducated don't consider what they cannot see.

[alandewinter]

Good video on dangers with spec building. I’ve been building since the mid 80’s and have overextended a couple of times, no lack of stress when you get caught in a market down turn. I still build spec homes but limit it to around 25% of production and usually build my smaller models. This helps even out production schedule with specs being buffer to fill in or delay as needed to keep presolds on delivery dates. Experience has taught me to built energy efficient good quality homes and vary the square footage not materials or workmanship to hit market price points.

[TheKaptainkraig]

Great video again! So here's what I've seen from my mom's neighborhood in suburban Atlanta. (I am a registered professional engineer with lots of structural design/construction work in industrial and military applications) New subdivision with 60 homes on 1 to 2 acre lots built in 2015. Her house was built by a builder as a spec home. Typical mcmansion....3600 sq feet, granite in the kitchen and master bath. Other than that, this house is built like the 1970s. It is very drafty plus the builder used cheapest single hung vinyl windows on the market (which 5 have failed so far and have condensation between the panes). Furnace cannot keep the house warm if it is below about 30 degrees. Cold air spilling in around all the windows and freezing cold floor near the outside walls, which just happen to be hardwood glued directly onto the slab! What? I can't believe they do this crap. Quite a few spots where the wood flooring separated from the concrete foundation. No kidding! Additionally, there has been several toilet drainage leaks since the toilet flanges were installed flush with the subfloor; the plumber just doubled up the wax rings and called it good. I replaced both upstairs toilet flanges myself. The pumped septic system failed very early on due to open circuits near the pump. That was one thing that the builder actually had fixed. I watched them dig up and replace a romex wire that was burried below grade....YES...ROMEX! But wait...there's more. Exterior of house is cement-board siding, but the trim boards are MDF. Really? I only figured that out when one of the skirt boards that was in contact with the patio slab started falling apart. I promptly replaced with PVC wood-like trim. Oh, and no window flashing either. I only pumped about 25 tubes of Big Stretch to band-aid fix any water trying to get in between the window frames and the siding. Additionally, the framers liked to use smooth nails upstairs subfloor. This floors creak and move around like a house built 80 years ago. I asked my mom if I could pull up the carpet and drive in about 10, 000 screws to solve the problem and I was told NO. HAHA. Up in the attic, I can see that most of the ceiling joists, strongbacks, etc were cut short. Not a big deal....just toe nail in a bunch of nails without a simpson connector and call it good! One plus they sort of tried for was the conditioned attic. They did open cell spray foam on the underside of the roof decking, however, around the wall to roof interface, they did no air sealing and used fiberglass bats. It was very warm in the attic in summertime, but not 140 degrees. At least they did not use that cardboard sheathing like some of those builders in TX, MS and LA use!....I think I could go on and on with my rant. My next house will be built to Matt Risinger standards! Thanks Matt for all the excellent content!

[thereasoner]

Building a spec home that is well above the national average on cost and price point is a very high-risk endeavor even in good times. Back in the early to mid 2000s, your accountant, manager, sales rep, etc. should have warned you not to take on such a high-risk build. Things are teetering on the same kind of edge these days, but for different reasons. Therefore, if you build entry level to mid-level homes, you would easily be able to rent them out if you had to carry them through a tough time. As far as comparable sales, it's very similar. If you build to the top 10% of buyers' desires, you limit your pool of potential buyers to a very small group. I love your videos, techniques, skills, etc., but keep in mind, you no longer NEED to build spec homes, because you have an established track record. Tiny builders don't have the luxury to build their first home as a custom home because no one will hire a builder with a brand-new company to build their custom home, when companies like yours, with proven track records have proof it can be done. It's a Catch-22.

[Mike-dbnn]

I also had a spec in 2007 listed at 800K. Differance was I had no partner and no bank. Rates went up and I sold as I could carry the loan at 6%. Dont spec build if you dont have the cash or a high tolerance for risk. I have been a builder for over 40 years. I built many presolds until I had the funds to build spec. Most customers are fine but you get a bad one and you will wish it was a spec. There are lots of other variables like floorplan, location etc. Another way is to build spec but not so high end and you can rent the property until market improves, again you need cash.

[Nonsense]

Agreed, my cousin passed away 6 years ago he was 58. He built custom homes and he used the same model to build a custom home as a spec house in one of the most affluent areas in Santa Monica SoCal! He lost over $2 Million on that house! The city put him through hell delayed his project! When it was completed in 2009. The market changed and what happened to Matt happened to him and probably thousands of other builders in the United States! He was an exceptional builder with exceptional taste, and built beautiful homes. He kept records of the homes that he built for 10 years. He was very responsible and ethical. He made the same decision that Matt made never to build another home on spec again he only build homes for people that could afford to make the progress payments paid on time had some challenges, but that was the last time he ever lost money.