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.
It's unfortunate that 9/10 "tract" builders in Texas use DryLine or Thermoply sheething. I'd gladly pay to upgrade to OSB (or preferably ZIP System), but they won't allow that type of "upgrade".
Unfortunately, if you end up having to sell though, it won’t be easy recouping that cost. There needs to be a way for quality to be better judged and valued. Building inspectors and home purchase inspectors are not providing what is needed. In fact, most are not even providing positive value to the process.
same here. I finally was able to afford to buy my dream properties in the area I want... Not great houses, but in the area every property with a decent home sells for 1-20 million. I bought the worst homes in the best neighborhood. Now I am remodeling, and I only care about making it right, making it perfect for us, because I plan to live here until I die, and I'm only 40. Gotta build them to last and build them to love.
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.
@@scottslotterbeck3796 so? If you build cheaply built crap with all the things people want then you make money. If you build a we built thing that no one wants you get no money
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!!
I've never done construction, never built a house, never even owned my own house, but something in your comment stuck out to me. "They loved my product but did not buy!" I sold cars for years and I remember my manager told me once, "Don't be the nicest person that never sold them a car" meaning, sometimes people will take all your free time, and even if you can answer every single one of their questions, even if there is no reason for the customer NOT to buy the vehicle from you, to not waste precious time with tire kickers.
Spec builders and home flippers get a lot of the blame for cutting corners but is that fair? If the buyers don't value those things are they really cutting corners or simply doing what the market wants.
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!
It matters!! Keep spreading the word. The public needs to start appreciating build quality in homes like they would in appliances, cars, electronics, etc. It will take time.
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."
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.
You really hit the nail on the head - this describes my city perfectly. You can't find anyone to hire to do a decent job - even if you want to pay them extra to do a better job.
@@matthewerwin4677 My parents basically built most of their homes. The last two took a few years. Our cabin and my parents house. The few contractors my dad used ended up being shady. They would ask for 50% of the money up front then barely deliver anything and ask for 75% of the money. They were spending the money on god knows what. One of them threatened to stop working if my dad didnt pay him more but the guy hadn't done a thing. Then he had the balls to ask for more money than the bid and laid on my dad a guilt trip about how my dad could clearly afford it. My dad tossed the bum and his buddy out and found somebody else.
Yep, this hits the nail on the head. I've heard you can't find decent tradespeople because they all work full time for the matt's but I'm starting to think that even the matt's probably can't get qualified competent workers. I really wonder how long it has been like this and if we will ever have quality workmanship again in this country. The solution may be to move as mant aspects of production off site to largerf businesses that can manage workers effectively and guarantee quality output.
@@fox156 No ...the solution is to close down the source of cheap labour . It drives the prices down since that's what they are supposed to do . Nobody with any dignity wants to work for less than they made in 1995 . As a taper I got 20.00 an hour in 1995 . Now around here a taper gets 25.00 per hour which buys less than 20.00 per hour in1995 . I got 50000 hours in taping from coast to coast but I'm not bustin my hump for 25.00 . And yet when I go to menards the place is crawling with Spanish speakers . I can make walls so smooth even flies break their necks. Keep voting Democrat rube . You deserve what you are getting
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.
My dad has been helping build his boss' mansion for the last three years. The boss' wife scrapped about $40,000 of blueprints the first week and is now complaining that her wine fridge is 1" too wide to fit next to the fireplace, and that her oak door from an European castle is a few inches too wide for the entry way. Good job security for my dad and his friends, but man I can't imagine dealing with that for 3+ years.
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
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.” 😂
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!
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.
Planning my first house build, infill lot, had a lot for 20 years watched as the area gentrified. Of course, I waited two years too long, but other commitments meant I couldn't move then.
Hey Joel, I'm a newer builder, doing my first spec this summer after doing many barns and a couple semi custom post and beam houses. This spec will be conventional and stick framed. I'm wondering what upgrades that the build show encourages are most worth it for every efficiency in a spec. We had been trying to find double stud wall architectural plans but would have had to hire an architect for new plans which really doesn't make sense for a spec. I'm thinking zip sheathing and furring out the interior of the framing so we can fit r30.
@@danjimielson I focus on houses that are affordable for first time home buyers, so unfortunately that doesn’t leave much room for a lot of the stuff that Matt shows on his channel, especially as material prices continue to climb. That being said, I still have to make air tightness a priority and pass the blower door test and comply with the energy code. For me, the quality comes down to having good subs, using quality brands (especially in the trades) and using the right materials in the right way, like floor joists 12” on center even when you can get away with 16” on center.
@@joelwatts6890 I 100% agree with you Joel. Im a spec builder in Australia. Typically build 15 houses a year. If you do your market research and build in areas of high demand the risk is much lower. Likewise I wont touch a project unless there 25%marins in their. I have the freedom to change things as I see fit during the build. I dont have client s breathing down my neck. Even the best client can still be difficult.
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!
I own rental property and weathered the 08' crash without a problem. I was very conservative in buying small homes in established areas, and kept rents low.
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.
It's even easier if you're good at training and managing profit margins and productivity. This is an area mat shouldn't be listened to. Especially with a less than 20 percent margin on that failed spec. Something like a 15% gross.
@@sparksmcgee6641 I agree. But my initial impression to this vid is he is trying to warn us about the state of the market right now, without sounding like a typical YT market predictor with a crystal ball. I think his intentions are good, but obviously we all simply cannot magically acquire endless clients wanting a custom home where cost is no barrier.
I had a long comment on this but a call came in. Mat or his staff I need to shut up and put up. Reach out I'll do a virtual interview on how construction workers can make money. Long term construction workers should be able to easily have a million in assets in 20 years. Even if youre just a guy hanging sheetrock the whole time for a W2 or 1099.
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.
What you should have learned is did is to not build something you can't afford. Instead your blaming the market because your ego didn't want to build in a mid tier market. Funny thing about how all the builders using other peoples money think they know how to build quality. They know how to hire quality subs. Quality is using the same walnut board to make something better not to spend more for a clear piece.
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.
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.
Hey Matt. Thanks for posting on the Spec topic. It's as important to discuss now as it was back in 2007. No matter the current economic/housing market you find yourself in when considering to build a spec, you bring up several good issues that are always prevalent to a higher or lower degree at the time. Each person has his or her unique ability to hedge the risks, so I can understand those who may be willing to roll the dice, as it were. However, you and others have posted vids with good info that some may not consider. It happens. Regardless, I remember 2007-2009 market very well, as I'm sure many viewers here do. Also, I remember the financial and emotional strains builders and non-builders went through alike. Your daughter's expression at 2:12 is priceless! The pic popped up when you were saying "did very bad things for my marriage....". It's like she just found out things had been bad. :) Glad many of us can look back with some relief that those very bad days are past, but like you, I'm willing to forego the potential spec profits to avoid the potential spec risks. Not sure I have enough years left to recover financially from a similar collapse.
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!
@@sparksmcgee6641 It was an impulse buy with my mom and my late father. I was living on the West Coast at the time. I never saw it till after they bought it. I didn't see the problems till they started popping up over time.
@@TheKaptainkraig so again sounds like your mom got what she wanted. She wasn't complaining you were. You could have spent your money to fix it all or tell her AHEAD of time that no matter when she buys a new house you'll pay to upgrade her to your version of quality. A year from now or 20. You do realize this is you ranting on your mom but you can't do that so you blame the mythical builder. Maybe it was a person that wanted to build junk so she could pay off all her grandkids debts. Then laughed when people like your mom offered her market rate. Quality at $100sf is junk at$400
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.
See that's the problem. You give a crap. I understand I do as well. I don't believe in taking advantage of someone for financial gain. Problem is a lot of people don't care about doing the right thing.
I bought an old home a few years ago and I ended up finding out that this house was a really bad purchase. No insulation but back in the 1920's, this house was insulated with whatever they had on hand. But I am going above and beyond to ensure that there's minimal heat loss. But it's nearly impossible.
Not everyone who flipped houses did that, I certainly didn't. I fixed everything as if I was going to be living there myself. Of course, my finished houses cost more and didn't flip as fast and that's why I eventually quit doing it.
@@bobjoatmon1993 Sorry to hear that, but the case is, when it comes to houses, quality and profit are inversely proportional. Every so often you might meet a client that understands quality in terms of what’s behind the walls, etc, but it’s rather rare.
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.
Thank you for your insight, Matt. I went with a spec house for our second home because the customer builders we looked at here in Central Florida wanted way too much for substandard quality. My wife and I looked at many under construction houses before we made a decision and except for a few disagreements with our sales rep (not her fault) we are pretty satisfied with our now 5-year-old home. I must say I was at the site almost daily checking for issues and pestering the GC about them. I corrected a few issues myself as well. Many folks don't take the time to stay on top of the builder to make sure the subs do a good job and that was not going to be me. It got to the point where a new sales rep told me not to go to the site anymore and I told him to you know what. Fast forward to about 6 months ago. A builder is now building on the vacant lot next door, I really feel sorry for whoever purchased that house. Its been marked up with so many issues it looks like graffiti.
What a rough patch that bit of time was. I'm so happy that bit of your personal life you shared had a happy path forward after all of your hard work. Thanks for sharing. I love watching your videos. Bit of a hijack. P.Pfeiffer is an amazing architect. While he was saturated during this 2007-8 period you described in this short. He made time for me during my home design up in Granbury, TX. He couldn't participate, but he advised. And went above and beyond with educating me way past my Building Science book knowledge, and getting me past the first impressions of a "good" home. I'm still living in the same home 16 years later and love how sustainable it's been relative to my neighbors. I am thrilled folks like you are pushing the technology out to builders here in Texas and challenging them to do better.
Mr. Risinger builds some top quality houses. You can tell by all those details he includes in the builds. The waterproofing alone is a master class in building techniques.
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.
I 100% agree with you. He is still pissed off from his 2007 loss that he still thinks in 2023 it’s a risk. He doesn’t know that affordable housing is high in demand for the next 10+ years. Building a simple 3 bed 2 bath 1800 sq ft Spec home is a very low risk project.
I see these builders putting up new homes on the market that were clearly built under the premise of 2021 and middle of 2022. The housing market has softened and I don't think these guys will be able to move these new homes at the price they are looking to sell. This is in Minneapolis area.
@@antonbriggs5680 The homes I am seeing are out in the MP, Andover, Ham Lake area. 1.2-1.4 million for a 4200-4600 sq foot two story. I think that was a stretch even in 2021\22.
To try to find a custom builder where I insist in being part of the team with this passive home inspired 2.5 story ICF basement, where I have a contractor account at my local hardware store is also a whole different ball game! I am interviewing builders and ICF contractors for months...and as Scott has pointed out in his experience doing spec home, but with air tightness, they ghost even him leaving him hanging....they do not want to do a lot of detail and will tell you NO and select another job. Too many want to fly in at warp speed, neglect the details and make a quick buck.....I continue to keep interviewing, asking questions to find out more "red flags" and use advice from the Buildshow in how to find an architect or contractor...Matt has his list of 20 questions. Once you start asking these questions and asking to "go see their work site" to observe the labour or what the framing looks like....well....there is resistance and some hesitation....yup! A red flag! So....I keep waiting....for 3-4 yrs now...pandemic did not help....but in Atlantic Canada...."Houston, we have a problem!" 🙃 🙏🇨🇦
I would buy a spec home if it's well built. The biggest problem is many builders cut corners. I looked at a stucco home in Bastrop that was beautiful. But, upon inspection, problems included improper foundation, the house was sloping to one side; improper water heater installation in the attic, no drain line to the outside. If there was a leak, it would flood the garage. Since the builder was building the house for himself, there was basically no inspection. He lived in it for a few years, then dumped it. I saw your work. You build nice houses. Wish I could afford your homes.
We need a quality + efficiency rating system for homes - lower quality homes would be worth less and better builds with lots of life left would be worth a lot more. That would go a long way to eliminating the outrageous prices being asked for garbage homes.
In general people account more for what they pay right now, then about potential savings in future. Most of the people are bad at long term planning, investing or saving.
Real estate agents could be mandated to inform clients of the historic utility bill costs of a property, which paired with square footage and building type, could be a strong indicator of efficiency compared between homes. Smart thermostats could already be collecting this kind of information.
@@ravenousvisages This. This is what's needed. A simple way to show normies in dollars & cents, or some type of simple grading system how 'this house' compares to the national average and NOT what its cost is compared to its neighbors.
I like this idea. Similar to the "grades" given by the health dept to restaurants in some cities. When people start bragging to their friends that they bought an "A" house then those friends will start demanding better from builders.
I built a house using advanced components that were available back in 2005 for ourselves personally and later sold it to sail around the world in 2014. I had the same experience with buyers as you... that buyers see nothing more than the "oh look stainless appliances" and the layout. However, I have to say there is also a strong argument for building houses traditionally - at least here in Canada, as we have a severe shortage of affordable homes The 2 bedroom 1 bathroom house I demolished was built in the 1960s and was in excellent condition except for the poorly created ring wall foundations which I could kick over with my foot and the asbestos in the drywall mud and floor tiles. Otherwise the house had no issues from dampness etc, without all the expensive barriers you are adding.
Matt, do a video on the cost of materials like windows, doors, etc, and delays on them. I bought some windows in December and STILL haven't received them. All the yards and suppliers were telling me 4-6 months..not weeks. Can't imagine building a spec home and having to gamble on what materials will be up.
I was getting near the end and typing in my comment on "what about the Uhlers" when you finally mentioned them. All good points on the challenges with spec homes regardless.
I definitely would agree wholeheartedly with not building spec homes but sometimes that’s the best way to start building up a reputation as a builder who care’s especially when you go above and beyond the code minimum and you push that out there. As someone who always wanted to get into building new homes, not having anything to show is a huge disadvantage when looking for clients. Most clients I’ve ever worked with want to see what you’ve built before and then they would come to the table. It’s rough but the big national builders are only building spec homes and they are killing it even in this market.
I’ve got a friend who use to build custom homes and spec homes. He often talked about the pros and cons of building both. His biggest issue with custom homes is dealing with clients who want last minute changes (usually it’s the wife who wants changes). He made a lot of money on spec homes back in the 70’s but he lost money on his last spec house. BTW, I’ve seen plenty of shoddily constructed “custom” homes in my lifetime.
Good points. I build high performance specs and we’ve been doing it successfully for several years now. It’s risky but the risk is calculated. Buyers only care about looks but I just can’t build bad homes like the competitors.
Hey Scott . Remember me ? I'm the guy that rewatches your videos with my two adult son's .......No? .....Never heard of me ? Well that's ok because we 3 know your name and very much appreciate the experiments you have done . A real rugged individualist . Rage on!
Matt, thanks for sharing your story and viewpoint, as well as sparking some good discussion. I'd like to see another video from a builder with the counter perspective (maybe Brian from Pioneer?). I myself only build spec and I'd like to think that we build a quality house at a very reasonable price. I do very well and I also sleep well at night. There are plenty of terrible custom homes out there. There is tons of content on the interwebs on how to build a quality home (yours being at the top of the list) from a technical standpoint, but what we need to talk about more and teach more of is the business and money side of it. It is possible to make a very good living building quality spec houses.
Actually a great vid. And btw what you said about people not caring about the insulation etc is so true. My last house I was METICULOUS with my basement; foam everywhere, sprayed and tight, whereas most just leave the blanket insulation in place and don’t care about joist bays. I’m convinced it made no difference when I sold it because 99% of people have no idea what they are even looking at.
Spec houses are listed for $250 to $350 per square foot here. They don't have those consumer "feel goods" like good layouts or nice countertops either, let alone being built well or energy efficient.
I'm really wanting to build spec homes. Affordable ones. Well built. Smaller and affordable. This video confirms much of what I already know, thanks for that. Really glad you made it thru the ruff times with the fam.
I think there's almost always a market for affordable homes. 2007 was crazy scary. Seeing older homes selling for far far less than it would cost to build them in the Colorado Springs market was scary. Today, though, I just can't get over the size and cost of new homes. I feel sorry for young people.
@@nancyh9030 yes, right? There must be a backup plan regarding finances. This is a thought I have built into any future actions with regards to building
My first spec house was a first rate build in Breckenridge. I was very happy with it. My second spec house in South Lake Tahoe is garbage quality. Every spec house I looked at in Tahoe under 2mil was the same quality. Just cheaply made to squeeze out high profits. If I wanted quality similar to my house in Breck I would have th move close to 3mil and in Truckee. There are good quality spec homes.
What you say does makes sense, unless you have some exceptional trades that you just don't want to lose (due to not having 'pre-sold' homes to build). Having to start from scratch finding good framers etc everytime you pre-sell can get old real fast. We build on spec mostly to keep our best trades busy, as well for keeping a consistent inventory.
Matt, besides a new kitchen and bath, what is the next big thing new homeowners look for in a house? I am near the end of a renovation project on a flip house, and I always planned on installing an electric fireplace and mantel. But now that the house is nearly done and ready to sell, i'm not sure it will bring any more value. The neighborhood this house is in will support a top price but not much more than what I am planning to list it for. thanks for the content, nice job as always! (btw, Studpack gave you a shoutout in their latest video).
15 years ago saw this happen in Newport Beach, CA. Old 1950's house purchased for 1.1 million. Demoed the house and new one was built on spec. It took 18 months to sell, for 1.8 million. New owners... ripped out the spec house and build a new one. The builder could have demoed the old house as sold the empty lot and made more money.
Yep. I did some flips in the 90's and installed a nice neutral carpet color. Inevitably, people would say things like: "muh, I wish it had blue, green, or some other color." Alas, it is probably impossible to flip in Austin now.
You are so right that most buyers only care about what the house looks like and not about the insulation etc. That is what scares me about people who buy flip houses. They are basically done fast and for looks. I would never buy one.
1:50 SAME thing happened to me in 2020 right when Covid hit. I had built this house spending 1m and at the time i was primed to sell for 1.8 then covid happened right when my lights turned on. Open house was DEAD. No traffic, my int built up and i had to cut a deal w/ my lender loosing everything. What a loss. Im still bitter about that. BITTER!
That period of time was wild... pretty much every real estate "expert" was saying home prices would keep going higher and higher, obviously they were wrong. I was working for a large home builder back then and things were crazy. Tracts selling out before the streets were even in. Lotteries to put in an offer. Just nuts. But it was easy to buy into the BS groups like the NAR was selling. I was fairly certain things were going to collapse but things still went on 2 years longer than I thought. But it was quite the education - back in 2005 I was spending several hours a day learning about credit default swaps, mortgage-backed securities, tranches, collateralized debt obligations, etc., if you looked under the hood it was easy to see it was a house of cards. But unfortunately most people didn't look under the hood and got burned. The only guys who didn't get burned were the Wall Street a-holes who initially lit the fuse on the housing bubble... go figure.
This comment and the collective up votes highlights the lack of awareness to the growing class divide that exists in the United States. Home ownership as we know it today will be written in history books. The water is boiling, 'ribbit'.
'07-10/11 was an insane time to be a land developer who wanted to build homes for sale - well built or otherwise... Also 1M into a house that is projected to sell for 1.3M is about average - that most likely includes land and soft costs, not just the cost to build
I really respect the way you build, and I personally as a consumer care about the things you cannot see I would rather spend the money on good materials that you would never see then say granite, countertops, and things of that sort
I went to look at expensive tract development, $1.5 million and up. OSB, cheap plastic faucets, scant lightings insulation, fixtures from Sears. But pretty if you didn't look closely
Hi Matt. I have a few questions for you if you don't mind. How much does it cost to replace the floor joists and plumbing in an old house in a poor neighborhood? What is the cost to build a new construction of a fourplex? What is the best use of $30,000 seed capital, a 750 fico score, no debt but no building experience?I thank you for your help. Have a good day and I look forward to hearing from you.
Balance. As a Dallas builder, you have to build a quality product buyers want, balancing performance and cost. And you have to leverage social media marketing to differentiate. I have sold over 1,200 homes as a realtor in the past 12 years. Prior to selling, I was a certified Nuclear Engineer on Naval Reactors (Naval officer, built and drove submarines). I have to reel myself in when I get to technical and over engineer. I am able to integrate the building marketing and selling process.
Matt, I feel your pain. I lost money on a spec in the crash of 1989. I didn't claim BK, paid my debts, made payments to the IRS for 5 years, never again.
Great video! Everyone in the Architecture and design world hates when contractors build spec homes by themselves. Nice neighborhoods get stuck with stucco box homes with vinyl windows, and architecture details that are completely out of portion to the rest of the home. Also, I've noticed that when teams do great spec home builds and do nothing but the best craftsmanship, they almost always make a profit, and if not, they at least break even. The trend I'm seeing now is, spec builds that go almost all the way but they cheap out at the last minute on shingle roofs......I don't get it, 5plis million dollar homes and you put asphalt shingle roofs.....
I'm in the Omaha area. $230-250k for a new sub 1500 Sq ft house. I've watched a neighborhood be built on my drive to work every day and even the more expensive stuff has no flashing around the windows, no underlayment on the roof. I'm sure these cheap ass builders wouldn't use tyvek if they could get away with it. It's almost best to buy a run down house built in the 80s and modernize it as your own GC.
Exactly what I just did. Took a 30yr cheap *ss builder spec home on a great lot that was a rental, GC'd myself, and put $150/S into it. It's now a premium rental, and I know that what I've got will last a few generations. I did it as a trial/thought experiment and learned a lot. I'll do it again if I can ever find something.
Such an important lesson for both builders and purchasers. Consumers in particular spend less time buying a house than they do a car, that underlines the real lack of knowledge at consumer level in this industry.
I've been interested in pivoting into residential construction for a few years now, but I've found that every which way I try to spin my particular skillet (focusing on low-maintenance, high-efficiency, and a long-term view of impact/utility) I am reality-checked by the "comp" framework. As you suggest - comps are anything but comparable. Trying to educate each possible buyer seems too broad, and trying to get banks and real-estate agents to modify their systems seems against their short term interests and ergo futile. I'm left with trying to put my money where my mouth is and building with the intent to rent. Check back in 20 years and I'll let you know how it works out haha
I think there's two factors here. One is to document the special features of the house - take photographs detailing how it's better than a generic house. People won't believe what you tell them about what's inside the walls, but they will believe what you show them. The second is to have options. If you have a potential tenant you trust, you can rent the house to them while you wait for the market to recover - and then you're selling the house with its utilities bills records over two or three years. Telling people "it will save power" is never as good as "it does save power, and here's the proof." If you really play it right, you'll sell the house to your tenant, because they really know what they're buying from you and also they don't have to pay removals. Some of us don't have the option to build for a client, and especially a rich client. We all have to start somewhere.
In agreement, but with a caveat. I have been a builder for 22 years, entering retirement now. I concentrated on the 2 to 4 million mark custom homes, but built and sold my personal homes from which I used as a model home for fit and finish and new ideas. It was a great sales promotion and a zero capital risk,even when it took 2 to 3 years to sell during the off years. With the lack of ( need to sell), we were able to commend premium pricing. It’s always more exiting working on your personal projects.
I have been burned too, but if you live long enough you start to see the cycles. So if you can wait for a crash and you can afford to keep carpenters busy then you can be well positioned for the economy to turn around.
We sold our house to a builder who moved his general contractor into the house so he could work on building a property behind ours. Then they bulldozed the 50s house and put up a (Very well made) spec house and sold it pretty quickly during the housing crash. Reason it was so easy: Location Location Location.
Matt, a great discussion! I wish you were my builder! Would love to sit and buy your beer and steak! All great points, money, family, and work all in one short discussion! Columbus Michigan
So if they’re building a new subdivision and homes are going up, are those considered spec houses? Thanks for the story, and glad you came out okay. Like Dave Ramsey says, “when it works it works” when it comes playing with fire… And just fyi, I would probably take a Chevy truck from the 90s vs one made a year ago with comparable mileage 🤪
Homeowner: I found my local HVAC installer who actually installs Mitsubishi Electric / Trane. I told him what I wanted, and mentioned your name and channel and he said you are among others who also come to us because of your channel. I am thinking you should ask for a little more sponsorship money from Trane/Mitsubishi Electric, because the word is getting out.
I wasn't involved with building a house in 2007 but I did a re-fi on the house I was living in and just remodeled. I got caught by a predatory lender and ended up losing the house. The market was terrible then and it's looking very similar now with climbing interest rates and banks closing. Finances are scary right now. I wouldn't get involved in a spec house right now either if I was a builder.
@@Mark-rw3kw it's a lender that gets you tied into a loan with hidden or forgotten clauses where they can call the loan due on demand. They got the payments where I wanted them but they didn't include escrow for insurance and taxes. So when they came due I had to pay them out of pocket and couldn't make the mortgage payments. They called the loan due and foreclosed on me.
@@mikemcgown6362 I have never heard of home mortgage loan that is due upon demand, so long as you are making payments on time. There is nothing predatory about a loan that becomes due if one is not making payments. As far as not including the taxes and insurance in the payment amount, I don't understand how a borrower can be fooled by that. Mortgage companies quote you principal and interest charges, and they might not even know that the taxes and insurance are for a variety of reasons. The price you pay for insurance depends on your insurance company, the coverage you sign up for (including deductible amounts) and other facts like bundling of home and auto insurance. They also don't know (and usually don't collect) HOA fees, which can be significant in some places (my HOA fee is 1/4 my mortgage payment). Never, ever, ever buy anything based solely on the monthly payments quoted you. That includes houses, cars, etc. Anytime you get a loan you should look at a projected loan amortization schedule that shows principal and interest of each payment over the life of the loan.
I don’t know. The market changed, sure, but a million in that house? Even for Texas I don’t know, less money less risk should be talked about, and doing as much work yourself helps. Maybe not a fair assessment but it’s your situation, I get it.
It depends on the location. You can't price empty lots just based on the state they are located in. Prime locations in Austin go for much more than lots on the outskirts of Austin, partially due to the fact that Austin has an inadequate highway system, and has encountered astronomical growth due the tech industry moving into the area. Also, a lot of those tech workers were transferred from high cost areas like Silicon Valley and they bring boatloads of money with them when shopping for a new home. Same thing happened to Las Vegas the last few years as remote working has become more common. Plus, Matt is building a much higher quality of home than average.
the only guy I knew that did well on spec houses built them when the market was soft. In other words, he wasn't trying to sell them, he built them to keep his crews busy. Which means he built them with cash on hand, and sold them when the market got hot again. Not all of us are quite that wealthy.
Larger spect builders tend to build some of the best value for the money houses available. Developers typically make their money on the development and don't give a crap about the houses they put up. Custom homes tend to be insanely expensive. That leaves spec houses, particularly those that are building several houses at a time, as the best value option. Edit: I just wanted to add I don't know of any good spec builders that are also first generation builders. So there is that.
A group of builders in my area built specs that are nicer than most of the custom builders in my area. Meanwhile no dealing with customers during the build process. Doesnt seem like such a bad gig but what do I know. Matt is the expert
I assume this sage advice also applies to so called “Flips”, especially in high dollar markets. Uncovering unexpected issues that blow your budget, or a change in market conditions, such as we’ve seen in rising interest rates, can take away profit in a heartbeat. In my state you have to be licensed as a general contractor to build a spec but any Joe can do a flip. Buyer beware, on both specs and flips, look past the staging and finishing. Get a good inspection by an unaffiliated third party before you close. That goes for plumbing and mechanical too. Don’t get caught in the hype of a “hot market” and make a bad decision.
Appreciate the content and you sharing your hard learned lessons via difficult experiences. Definitely agree with you on the spec houses... buyers and agents don't know what to look for regarding the build quality and in many cases only compare homes based on monthly payment and amount of sq ft. Amazes me what people are paying for junk homes that have been hacked by the last 5 different owners. Then pass on the custom one owner home because it's "dated".
we have 3 or 4 builders in my area building "spec" homes. they did well during the covid market and all refused to do custom homes to cash in the savings and the bidding wars. excuse was "supply shortage". ...... now, they all have homes "sitting" for months. one car garage bungalows and one car garage 2 storeys shoved in a tight neighborhood with no custom options, these greedy bastards deserve it.
Clients take similar risks. They can upgrade insulation and other components behind the walls but when they put the house on the market what matters most to buyers is what is visible.
I 100% thought “Spec” was short for specification, IE here are your cookie cutter choices, specifications already decided. But knowing it’s an even deeper more logical meaning of the housing market we see produced in our suburbs, puts things into perspective. Learn something new everyday.
I was thinking about doing a spec house, but my fear right now is not getting at least close to my asking price, but how long will it sit while I have to pay the interest on it? I think everyone right now is trying to figure out where the economy is going and until that happens I'm not going to do it.
Not in the trades but that makes a lot of sense. Availability and price the key factors especially for younger people starting out. Logic will tell me your custom clients little older little more established and can afford the upgrades.
It's funny now how we look at houses basically the same way we look at consumer products. We don't think of them as places where we live, they're just stuff we use and leave once we're done with it. It's sad because construction is energy intensive, creates a lot of GHGs, and when it's to build so cheap you got to demolish and start over that much more often, it's all the more silly. The two biggest mistakes we have made with housing : we've let it become a consumer product, and we've let it become an investment tool. Neither of these things contribute to better building quality and affordable places to live. This needs to change.
Unfortunately unless you have $1M+ to spend on a new house, most of em are crap these days. Even then, the high price doesn't guarantee it's a good house.
Seems like the spec home market has some parallels to the used car market. Essentially, buyers must assume all spec homes are built to the lowest quality standards allowed and therefore offer a commensurate price. That's not a good market to be in if you care about providing quality products while also making a profit.
Matt admittedly got burned for a lot of money. That’s reason enough not to want build on spec in the future. But to suggest that spec houses are inherently not “well built” is ridiculous.
As someone looking to build, I definitely care more about the insulation, air tightness, and how good the windows are. Countertops can easily be changed.
How do you avoid a client who won't close on their custom house? They may have anticipated a certain interest rate, and eight months later, the current interest makes the house unaffordable to them.
specs are speculative so yes there is risk. but your example happened to be during the greatest market down turn in our life time, so not really the normal results. specs are necessary for builders to sell to the buyer who cant wait months for a build job. Yes specs are risky for down turns in the market but so are build jobs. How many stories do builders have of a huge expensive custom build job that the buyers cancel/walk away from and then you are stuck with the house to sell that isnt likely built to sell to the general public. basically in a down turn, you can make all homebuilding look risky because it is.
Southwest Florida is about to be a major catastrophe with all the spec housing being built. I have always questioned the quality of these homes due to supply limitations, increased labor costs and shortage of labor available over the past couple years. Everything about the housing market here is screaming with red flags.
Further, realtors largely use so-called “comparables” which as you mentioned is based on pure appearance. Thus, quality homes are under-valued by hundreds of thousands. I built my custom homes nearly thirty years ago. Realtors have low-balled me and tried to steal it.
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.
Great points Victor! Yes agree
It's unfortunate that 9/10 "tract" builders in Texas use DryLine or Thermoply sheething. I'd gladly pay to upgrade to OSB (or preferably ZIP System), but they won't allow that type of "upgrade".
Unfortunately, if you end up having to sell though, it won’t be easy recouping that cost. There needs to be a way for quality to be better judged and valued. Building inspectors and home purchase inspectors are not providing what is needed. In fact, most are not even providing positive value to the process.
Wide hallways are underrated for a forever home :)
same here. I finally was able to afford to buy my dream properties in the area I want... Not great houses, but in the area every property with a decent home sells for 1-20 million. I bought the worst homes in the best neighborhood. Now I am remodeling, and I only care about making it right, making it perfect for us, because I plan to live here until I die, and I'm only 40. Gotta build them to last and build them to love.
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.
Problem is most folks think crap is cool.
@@scottslotterbeck3796 so? If you build cheaply built crap with all the things people want then you make money. If you build a we built thing that no one wants you get no money
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!!
I've never done construction, never built a house, never even owned my own house, but something in your comment stuck out to me. "They loved my product but did not buy!"
I sold cars for years and I remember my manager told me once, "Don't be the nicest person that never sold them a car" meaning, sometimes people will take all your free time, and even if you can answer every single one of their questions, even if there is no reason for the customer NOT to buy the vehicle from you, to not waste precious time with tire kickers.
Spec builders and home flippers get a lot of the blame for cutting corners but is that fair? If the buyers don't value those things are they really cutting corners or simply doing what the market wants.
@@honuswagner9348 Yes, but did you TO the prospect to the manager or “closer” on your team? “No one walks until they talk to me first”
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!
It matters!! Keep spreading the word. The public needs to start appreciating build quality in homes like they would in appliances, cars, electronics, etc. It will take time.
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."
I would have never though people cared about that. Thanks for the tips !
You're an architect?
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.
You really hit the nail on the head - this describes my city perfectly. You can't find anyone to hire to do a decent job - even if you want to pay them extra to do a better job.
I ended up building my house pretty much alone. Took me 2 years. Nobody would show up or answer the phone.
@@matthewerwin4677 My parents basically built most of their homes. The last two took a few years. Our cabin and my parents house. The few contractors my dad used ended up being shady. They would ask for 50% of the money up front then barely deliver anything and ask for 75% of the money. They were spending the money on god knows what. One of them threatened to stop working if my dad didnt pay him more but the guy hadn't done a thing. Then he had the balls to ask for more money than the bid and laid on my dad a guilt trip about how my dad could clearly afford it. My dad tossed the bum and his buddy out and found somebody else.
Yep, this hits the nail on the head. I've heard you can't find decent tradespeople because they all work full time for the matt's but I'm starting to think that even the matt's probably can't get qualified competent workers. I really wonder how long it has been like this and if we will ever have quality workmanship again in this country. The solution may be to move as mant aspects of production off site to largerf businesses that can manage workers effectively and guarantee quality output.
@@fox156 No ...the solution is to close down the source of cheap labour . It drives the prices down since that's what they are supposed to do . Nobody with any dignity wants to work for less than they made in 1995 . As a taper I got 20.00 an hour in 1995 . Now around here a taper gets 25.00 per hour which buys less than 20.00 per hour in1995 . I got 50000 hours in taping from coast to coast but I'm not bustin my hump for 25.00 . And yet when I go to menards the place is crawling with Spanish speakers .
I can make walls so smooth even flies break their necks. Keep voting Democrat rube . You deserve what you are getting
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.
Yeah that must suck.
My dad has been helping build his boss' mansion for the last three years. The boss' wife scrapped about $40,000 of blueprints the first week and is now complaining that her wine fridge is 1" too wide to fit next to the fireplace, and that her oak door from an European castle is a few inches too wide for the entry way. Good job security for my dad and his friends, but man I can't imagine dealing with that for 3+ years.
I’d much rather have granite counters and a 3 bay garage than 2” x6” walls. Are u insane ?! Who cares about the walls?
For a custom, you ever do something like chalk out the interior on a parking lot and have the client do a walk thru?
That's what she said
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
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.” 😂
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!
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.
Planning my first house build, infill lot, had a lot for 20 years watched as the area gentrified.
Of course, I waited two years too long, but other commitments meant I couldn't move then.
Hey Joel, I'm a newer builder, doing my first spec this summer after doing many barns and a couple semi custom post and beam houses. This spec will be conventional and stick framed. I'm wondering what upgrades that the build show encourages are most worth it for every efficiency in a spec. We had been trying to find double stud wall architectural plans but would have had to hire an architect for new plans which really doesn't make sense for a spec. I'm thinking zip sheathing and furring out the interior of the framing so we can fit r30.
@@danjimielson I focus on houses that are affordable for first time home buyers, so unfortunately that doesn’t leave much room for a lot of the stuff that Matt shows on his channel, especially as material prices continue to climb. That being said, I still have to make air tightness a priority and pass the blower door test and comply with the energy code. For me, the quality comes down to having good subs, using quality brands (especially in the trades) and using the right materials in the right way, like floor joists 12” on center even when you can get away with 16” on center.
@James Karrie depends on what you are trying to achieve. On a tight floor plan with no wiggle room for stair total rise/run that won’t work.
@@joelwatts6890 I 100% agree with you Joel. Im a spec builder in Australia. Typically build 15 houses a year. If you do your market research and build in areas of high demand the risk is much lower. Likewise I wont touch a project unless there 25%marins in their. I have the freedom to change things as I see fit during the build. I dont have client s breathing down my neck. Even the best client can still be difficult.
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!
I own rental property and weathered the 08' crash without a problem. I was very conservative in buying small homes in established areas, and kept rents low.
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.
It's even easier if you're good at training and managing profit margins and productivity. This is an area mat shouldn't be listened to. Especially with a less than 20 percent margin on that failed spec. Something like a 15% gross.
@@sparksmcgee6641 I agree. But my initial impression to this vid is he is trying to warn us about the state of the market right now, without sounding like a typical YT market predictor with a crystal ball. I think his intentions are good, but obviously we all simply cannot magically acquire endless clients wanting a custom home where cost is no barrier.
I had a long comment on this but a call came in. Mat or his staff I need to shut up and put up. Reach out I'll do a virtual interview on how construction workers can make money. Long term construction workers should be able to easily have a million in assets in 20 years. Even if youre just a guy hanging sheetrock the whole time for a W2 or 1099.
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.
What you should have learned is did is to not build something you can't afford. Instead your blaming the market because your ego didn't want to build in a mid tier market. Funny thing about how all the builders using other peoples money think they know how to build quality. They know how to hire quality subs. Quality is using the same walnut board to make something better not to spend more for a clear piece.
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.
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.
Hey Matt. Thanks for posting on the Spec topic. It's as important to discuss now as it was back in 2007. No matter the current economic/housing market you find yourself in when considering to build a spec, you bring up several good issues that are always prevalent to a higher or lower degree at the time. Each person has his or her unique ability to hedge the risks, so I can understand those who may be willing to roll the dice, as it were. However, you and others have posted vids with good info that some may not consider. It happens. Regardless, I remember 2007-2009 market very well, as I'm sure many viewers here do. Also, I remember the financial and emotional strains builders and non-builders went through alike. Your daughter's expression at 2:12 is priceless! The pic popped up when you were saying "did very bad things for my marriage....". It's like she just found out things had been bad. :) Glad many of us can look back with some relief that those very bad days are past, but like you, I'm willing to forego the potential spec profits to avoid the potential spec risks. Not sure I have enough years left to recover financially from a similar collapse.
Sounds like those years similarly burned some memory into your brain! Thanks for taking the time to comment
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!
I can't believe you let your mother buy it. Where were you? Builders build what buyers want
@@sparksmcgee6641 It was an impulse buy with my mom and my late father. I was living on the West Coast at the time. I never saw it till after they bought it. I didn't see the problems till they started popping up over time.
@@sparksmcgee6641 One of the selling points was 3 fireplaces! HAHA
From the builder’s/seller’s perspective, I think your “rant” showed all the reasons why you WOULD want to build spec houses.
@@TheKaptainkraig so again sounds like your mom got what she wanted. She wasn't complaining you were. You could have spent your money to fix it all or tell her AHEAD of time that no matter when she buys a new house you'll pay to upgrade her to your version of quality. A year from now or 20.
You do realize this is you ranting on your mom but you can't do that so you blame the mythical builder. Maybe it was a person that wanted to build junk so she could pay off all her grandkids debts. Then laughed when people like your mom offered her market rate. Quality at $100sf is junk at$400
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.
See that's the problem. You give a crap. I understand I do as well. I don't believe in taking advantage of someone for financial gain. Problem is a lot of people don't care about doing the right thing.
That’s why I can never remodel houses. The care for quality and doing the right thing I cannot ignore.
I bought an old home a few years ago and I ended up finding out that this house was a really bad purchase. No insulation but back in the 1920's, this house was insulated with whatever they had on hand. But I am going above and beyond to ensure that there's minimal heat loss. But it's nearly impossible.
Not everyone who flipped houses did that, I certainly didn't.
I fixed everything as if I was going to be living there myself. Of course, my finished houses cost more and didn't flip as fast and that's why I eventually quit doing it.
@@bobjoatmon1993 Sorry to hear that, but the case is, when it comes to houses, quality and profit are inversely proportional. Every so often you might meet a client that understands quality in terms of what’s behind the walls, etc, but it’s rather rare.
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.
Thank you for your insight, Matt. I went with a spec house for our second home because the customer builders we looked at here in Central Florida wanted way too much for substandard quality. My wife and I looked at many under construction houses before we made a decision and except for a few disagreements with our sales rep (not her fault) we are pretty satisfied with our now 5-year-old home. I must say I was at the site almost daily checking for issues and pestering the GC about them. I corrected a few issues myself as well. Many folks don't take the time to stay on top of the builder to make sure the subs do a good job and that was not going to be me. It got to the point where a new sales rep told me not to go to the site anymore and I told him to you know what. Fast forward to about 6 months ago. A builder is now building on the vacant lot next door, I really feel sorry for whoever purchased that house. Its been marked up with so many issues it looks like graffiti.
What a rough patch that bit of time was. I'm so happy that bit of your personal life you shared had a happy path forward after all of your hard work. Thanks for sharing. I love watching your videos. Bit of a hijack. P.Pfeiffer is an amazing architect. While he was saturated during this 2007-8 period you described in this short. He made time for me during my home design up in Granbury, TX. He couldn't participate, but he advised. And went above and beyond with educating me way past my Building Science book knowledge, and getting me past the first impressions of a "good" home. I'm still living in the same home 16 years later and love how sustainable it's been relative to my neighbors. I am thrilled folks like you are pushing the technology out to builders here in Texas and challenging them to do better.
Mr. Risinger builds some top quality houses. You can tell by all those details he includes in the builds. The waterproofing alone is a master class in building techniques.
Thanks my friend!
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.
I 100% agree with you. He is still pissed off from his 2007 loss that he still thinks in 2023 it’s a risk. He doesn’t know that affordable housing is high in demand for the next 10+ years. Building a simple 3 bed 2 bath 1800 sq ft Spec home is a very low risk project.
I see these builders putting up new homes on the market that were clearly built under the premise of 2021 and middle of 2022. The housing market has softened and I don't think these guys will be able to move these new homes at the price they are looking to sell. This is in Minneapolis area.
@@putamadre3640 very low profit too.
@@Elementalism Minneapolis is a mixed bag going to Maple Grove and suburbs is where the the money is. Just follow the shopping centers
@@antonbriggs5680 The homes I am seeing are out in the MP, Andover, Ham Lake area. 1.2-1.4 million for a 4200-4600 sq foot two story. I think that was a stretch even in 2021\22.
To try to find a custom builder where I insist in being part of the team with this passive home inspired 2.5 story ICF basement, where I have a contractor account at my local hardware store is also a whole different ball game! I am interviewing builders and ICF contractors for months...and as Scott has pointed out in his experience doing spec home, but with air tightness, they ghost even him leaving him hanging....they do not want to do a lot of detail and will tell you NO and select another job. Too many want to fly in at warp speed, neglect the details and make a quick buck.....I continue to keep interviewing, asking questions to find out more "red flags" and use advice from the Buildshow in how to find an architect or contractor...Matt has his list of 20 questions. Once you start asking these questions and asking to "go see their work site" to observe the labour or what the framing looks like....well....there is resistance and some hesitation....yup! A red flag! So....I keep waiting....for 3-4 yrs now...pandemic did not help....but in Atlantic Canada...."Houston, we have a problem!" 🙃 🙏🇨🇦
I would buy a spec home if it's well built. The biggest problem is many builders cut corners.
I looked at a stucco home in Bastrop that was beautiful. But, upon inspection, problems included improper foundation, the house was sloping to one side; improper water heater installation in the attic, no drain line to the outside. If there was a leak, it would flood the garage. Since the builder was building the house for himself, there was basically no inspection. He lived in it for a few years, then dumped it.
I saw your work. You build nice houses. Wish I could afford your homes.
We need a quality + efficiency rating system for homes - lower quality homes would be worth less and better builds with lots of life left would be worth a lot more. That would go a long way to eliminating the outrageous prices being asked for garbage homes.
In general people account more for what they pay right now, then about potential savings in future. Most of the people are bad at long term planning, investing or saving.
Real estate agents could be mandated to inform clients of the historic utility bill costs of a property, which paired with square footage and building type, could be a strong indicator of efficiency compared between homes. Smart thermostats could already be collecting this kind of information.
@@ravenousvisages This. This is what's needed. A simple way to show normies in dollars & cents, or some type of simple grading system how 'this house' compares to the national average and NOT what its cost is compared to its neighbors.
I like this idea. Similar to the "grades" given by the health dept to restaurants in some cities. When people start bragging to their friends that they bought an "A" house then those friends will start demanding better from builders.
I built a house using advanced components that were available back in 2005 for ourselves personally and later sold it to sail around the world in 2014. I had the same experience with buyers as you... that buyers see nothing more than the "oh look stainless appliances" and the layout. However, I have to say there is also a strong argument for building houses traditionally - at least here in Canada, as we have a severe shortage of affordable homes The 2 bedroom 1 bathroom house I demolished was built in the 1960s and was in excellent condition except for the poorly created ring wall foundations which I could kick over with my foot and the asbestos in the drywall mud and floor tiles. Otherwise the house had no issues from dampness etc, without all the expensive barriers you are adding.
Matt, do a video on the cost of materials like windows, doors, etc, and delays on them. I bought some windows in December and STILL haven't received them. All the yards and suppliers were telling me 4-6 months..not weeks. Can't imagine building a spec home and having to gamble on what materials will be up.
I was getting near the end and typing in my comment on "what about the Uhlers" when you finally mentioned them. All good points on the challenges with spec homes regardless.
I definitely would agree wholeheartedly with not building spec homes but sometimes that’s the best way to start building up a reputation as a builder who care’s especially when you go above and beyond the code minimum and you push that out there. As someone who always wanted to get into building new homes, not having anything to show is a huge disadvantage when looking for clients. Most clients I’ve ever worked with want to see what you’ve built before and then they would come to the table. It’s rough but the big national builders are only building spec homes and they are killing it even in this market.
I’ve got a friend who use to build custom homes and spec homes. He often talked about the pros and cons of building both. His biggest issue with custom homes is dealing with clients who want last minute changes (usually it’s the wife who wants changes). He made a lot of money on spec homes back in the 70’s but he lost money on his last spec house. BTW, I’ve seen plenty of shoddily constructed “custom” homes in my lifetime.
Good points. I build high performance specs and we’ve been doing it successfully for several years now. It’s risky but the risk is calculated. Buyers only care about looks but I just can’t build bad homes like the competitors.
Hey Scott . Remember me ? I'm the guy that rewatches your videos with my two adult son's .......No? .....Never heard of me ? Well that's ok because we 3 know your name and very much appreciate the experiments you have done . A real rugged individualist . Rage on!
@@theodoremartin6153 Thank you!
@@ScottTrue Holy molie! I got a reply ! Got ta show this to the boys .
@@theodoremartin6153 It would probably help if you didn't try talking to him like you're a serial killer... lol.
@@honuswagner9348 it would probably help if you didn't talk at all since you obviously can plug up a toilet in 3 seconds flat . FU . Lol!
Matt, thanks for sharing your story and viewpoint, as well as sparking some good discussion. I'd like to see another video from a builder with the counter perspective (maybe Brian from Pioneer?). I myself only build spec and I'd like to think that we build a quality house at a very reasonable price. I do very well and I also sleep well at night. There are plenty of terrible custom homes out there. There is tons of content on the interwebs on how to build a quality home (yours being at the top of the list) from a technical standpoint, but what we need to talk about more and teach more of is the business and money side of it. It is possible to make a very good living building quality spec houses.
Actually a great vid.
And btw what you said about people not caring about the insulation etc is so true. My last house I was METICULOUS with my basement; foam everywhere, sprayed and tight, whereas most just leave the blanket insulation in place and don’t care about joist bays. I’m convinced it made no difference when I sold it because 99% of people have no idea what they are even looking at.
Great content Matt! It would be really great if you started posting the podcast here on RUclips- regardless if it’s audio only. Thanks
Spec houses are listed for $250 to $350 per square foot here. They don't have those consumer "feel goods" like good layouts or nice countertops either, let alone being built well or energy efficient.
I'm really wanting to build spec homes. Affordable ones. Well built. Smaller and affordable. This video confirms much of what I already know, thanks for that. Really glad you made it thru the ruff times with the fam.
I think there's almost always a market for affordable homes. 2007 was crazy scary. Seeing older homes selling for far far less than it would cost to build them in the Colorado Springs market was scary. Today, though, I just can't get over the size and cost of new homes. I feel sorry for young people.
Also I think if you could build one that you could afford to rent out if the market went south would be another option.
@@nancyh9030 yes, right? There must be a backup plan regarding finances. This is a thought I have built into any future actions with regards to building
My first spec house was a first rate build in Breckenridge. I was very happy with it. My second spec house in South Lake Tahoe is garbage quality. Every spec house I looked at in Tahoe under 2mil was the same quality. Just cheaply made to squeeze out high profits. If I wanted quality similar to my house in Breck I would have th move close to 3mil and in Truckee. There are good quality spec homes.
What you say does makes sense, unless you have some exceptional trades that you just don't want to lose (due to not having 'pre-sold' homes to build). Having to start from scratch finding good framers etc everytime you pre-sell can get old real fast. We build on spec mostly to keep our best trades busy, as well for keeping a consistent inventory.
Matt, besides a new kitchen and bath, what is the next big thing new homeowners look for in a house? I am near the end of a renovation project on a flip house, and I always planned on installing an electric fireplace and mantel. But now that the house is nearly done and ready to sell, i'm not sure it will bring any more value. The neighborhood this house is in will support a top price but not much more than what I am planning to list it for. thanks for the content, nice job as always! (btw, Studpack gave you a shoutout in their latest video).
15 years ago saw this happen in Newport Beach, CA. Old 1950's house purchased for 1.1 million. Demoed the house and new one was built on spec. It took 18 months to sell, for 1.8 million. New owners... ripped out the spec house and build a new one. The builder could have demoed the old house as sold the empty lot and made more money.
Lol ouch
Yep. I did some flips in the 90's and installed a nice neutral carpet color. Inevitably, people would say things like: "muh, I wish it had blue, green, or some other color." Alas, it is probably impossible to flip in Austin now.
You are so right that most buyers only care about what the house looks like and not about the insulation etc. That is what scares me about people who buy flip houses. They are basically done fast and for looks. I would never buy one.
1:50 SAME thing happened to me in 2020 right when Covid hit. I had built this house spending 1m and at the time i was primed to sell for 1.8 then covid happened right when my lights turned on. Open house was DEAD. No traffic, my int built up and i had to cut a deal w/ my lender loosing everything. What a loss. Im still bitter about that. BITTER!
I will say i built all my homes to a standard i would be happy to call my own.
The funnest home I did for my self and sold had 75 in Sony 4ks in the bathrooms behind two way mirrors. A cool cheap way to put cool factor in a home.
So that was fantastic. Excellent share, thank you!
That was a $1m plus home in Austin in ‘07? I think Matt overbuilt the spec, and no wonder it left a bad taste.
That period of time was wild... pretty much every real estate "expert" was saying home prices would keep going higher and higher, obviously they were wrong. I was working for a large home builder back then and things were crazy. Tracts selling out before the streets were even in. Lotteries to put in an offer. Just nuts. But it was easy to buy into the BS groups like the NAR was selling. I was fairly certain things were going to collapse but things still went on 2 years longer than I thought. But it was quite the education - back in 2005 I was spending several hours a day learning about credit default swaps, mortgage-backed securities, tranches, collateralized debt obligations, etc., if you looked under the hood it was easy to see it was a house of cards. But unfortunately most people didn't look under the hood and got burned. The only guys who didn't get burned were the Wall Street a-holes who initially lit the fuse on the housing bubble... go figure.
@@bobbyj0708 I worked for a large spec builder and alot of the older guys are always telling crazy stories about 08.
Yeah that was just before the great crash. Home pricing was insane everywhere.
This comment and the collective up votes highlights the lack of awareness to the growing class divide that exists in the United States. Home ownership as we know it today will be written in history books.
The water is boiling, 'ribbit'.
'07-10/11 was an insane time to be a land developer who wanted to build homes for sale - well built or otherwise...
Also 1M into a house that is projected to sell for 1.3M is about average - that most likely includes land and soft costs, not just the cost to build
I really respect the way you build, and I personally as a consumer care about the things you cannot see I would rather spend the money on good materials that you would never see then say granite, countertops, and things of that sort
I went to look at expensive tract development, $1.5 million and up. OSB, cheap plastic faucets, scant lightings insulation, fixtures from Sears. But pretty if you didn't look closely
Hi Matt. I have a few questions for you if you don't mind. How much does it cost to replace the floor joists and plumbing in an old house in a poor neighborhood? What is the cost to build a new construction of a fourplex? What is the best use of $30,000 seed capital, a 750 fico score, no debt but no building experience?I thank you for your help. Have a good day and I look forward to hearing from you.
Balance.
As a Dallas builder, you have to build a quality product buyers want, balancing performance and cost. And you have to leverage social media marketing to differentiate. I have sold over 1,200 homes as a realtor in the past 12 years. Prior to selling, I was a certified Nuclear Engineer on Naval Reactors (Naval officer, built and drove submarines).
I have to reel myself in when I get to technical and over engineer.
I am able to integrate the building marketing and selling process.
Matt, I feel your pain. I lost money on a spec in the crash of 1989. I didn't claim BK, paid my debts, made payments to the IRS for 5 years, never again.
Great video! Everyone in the Architecture and design world hates when contractors build spec homes by themselves. Nice neighborhoods get stuck with stucco box homes with vinyl windows, and architecture details that are completely out of portion to the rest of the home. Also, I've noticed that when teams do great spec home builds and do nothing but the best craftsmanship, they almost always make a profit, and if not, they at least break even. The trend I'm seeing now is, spec builds that go almost all the way but they cheap out at the last minute on shingle roofs......I don't get it, 5plis million dollar homes and you put asphalt shingle roofs.....
I'm in the Omaha area. $230-250k for a new sub 1500 Sq ft house.
I've watched a neighborhood be built on my drive to work every day and even the more expensive stuff has no flashing around the windows, no underlayment on the roof. I'm sure these cheap ass builders wouldn't use tyvek if they could get away with it.
It's almost best to buy a run down house built in the 80s and modernize it as your own GC.
Exactly what I just did. Took a 30yr cheap *ss builder spec home on a great lot that was a rental, GC'd myself, and put $150/S into it. It's now a premium rental, and I know that what I've got will last a few generations. I did it as a trial/thought experiment and learned a lot. I'll do it again if I can ever find something.
In California $250,000 buys you the garage. A 2,000 sq ft home goes for $850,000.
Never gets old ...."On The Build Show!" Love it!
Such an important lesson for both builders and purchasers. Consumers in particular spend less time buying a house than they do a car, that underlines the real lack of knowledge at consumer level in this industry.
I've been interested in pivoting into residential construction for a few years now, but I've found that every which way I try to spin my particular skillet (focusing on low-maintenance, high-efficiency, and a long-term view of impact/utility) I am reality-checked by the "comp" framework.
As you suggest - comps are anything but comparable. Trying to educate each possible buyer seems too broad, and trying to get banks and real-estate agents to modify their systems seems against their short term interests and ergo futile.
I'm left with trying to put my money where my mouth is and building with the intent to rent. Check back in 20 years and I'll let you know how it works out haha
Thanks for sharing that very real story.
I think there's two factors here.
One is to document the special features of the house - take photographs detailing how it's better than a generic house. People won't believe what you tell them about what's inside the walls, but they will believe what you show them.
The second is to have options. If you have a potential tenant you trust, you can rent the house to them while you wait for the market to recover - and then you're selling the house with its utilities bills records over two or three years. Telling people "it will save power" is never as good as "it does save power, and here's the proof." If you really play it right, you'll sell the house to your tenant, because they really know what they're buying from you and also they don't have to pay removals.
Some of us don't have the option to build for a client, and especially a rich client. We all have to start somewhere.
Awesome advice. Love your channel.
In agreement, but with a caveat. I have been a builder for 22 years, entering retirement now. I concentrated on the 2 to 4 million mark custom homes, but built and sold my personal homes from which I used as a model home for fit and finish and new ideas. It was a great sales promotion and a zero capital risk,even when it took 2 to 3 years to sell during the off years. With the lack of ( need to sell), we were able to commend premium pricing. It’s always more exiting working on your personal projects.
I have been burned too, but if you live long enough you start to see the cycles. So if you can wait for a crash and you can afford to keep carpenters busy then you can be well positioned for the economy to turn around.
In the long run, we're dead. But you are correct.
Great advice Matt! Thanks
We sold our house to a builder who moved his general contractor into the house so he could work on building a property behind ours. Then they bulldozed the 50s house and put up a (Very well made) spec house and sold it pretty quickly during the housing crash. Reason it was so easy: Location Location Location.
Matt, a great discussion! I wish you were my builder! Would love to sit and buy your beer and steak! All great points, money, family, and work all in one short discussion! Columbus Michigan
So if they’re building a new subdivision and homes are going up, are those considered spec houses?
Thanks for the story, and glad you came out okay. Like Dave Ramsey says, “when it works it works” when it comes playing with fire…
And just fyi, I would probably take a Chevy truck from the 90s vs one made a year ago with comparable mileage 🤪
Homeowner: I found my local HVAC installer who actually installs Mitsubishi Electric / Trane. I told him what I wanted, and mentioned your name and channel and he said you are among others who also come to us because of your channel. I am thinking you should ask for a little more sponsorship money from Trane/Mitsubishi Electric, because the word is getting out.
Labor and material cost have gone up but people expect homes to be cheaper than the build
Really bad idea now with the collapsing housing market; Ground Zero is in Austin Texas
It's really goung to spread. People got used to 2% mortgage rates. Now 7% and rising.
Just like Jimmy Carter times if you're opd enough to remember.
I wasn't involved with building a house in 2007 but I did a re-fi on the house I was living in and just remodeled. I got caught by a predatory lender and ended up losing the house. The market was terrible then and it's looking very similar now with climbing interest rates and banks closing. Finances are scary right now. I wouldn't get involved in a spec house right now either if I was a builder.
What is a predatory lender?
@@Mark-rw3kw it's a lender that gets you tied into a loan with hidden or forgotten clauses where they can call the loan due on demand. They got the payments where I wanted them but they didn't include escrow for insurance and taxes. So when they came due I had to pay them out of pocket and couldn't make the mortgage payments. They called the loan due and foreclosed on me.
@@mikemcgown6362 I have never heard of home mortgage loan that is due upon demand, so long as you are making payments on time. There is nothing predatory about a loan that becomes due if one is not making payments.
As far as not including the taxes and insurance in the payment amount, I don't understand how a borrower can be fooled by that. Mortgage companies quote you principal and interest charges, and they might not even know that the taxes and insurance are for a variety of reasons. The price you pay for insurance depends on your insurance company, the coverage you sign up for (including deductible amounts) and other facts like bundling of home and auto insurance. They also don't know (and usually don't collect) HOA fees, which can be significant in some places (my HOA fee is 1/4 my mortgage payment).
Never, ever, ever buy anything based solely on the monthly payments quoted you. That includes houses, cars, etc. Anytime you get a loan you should look at a projected loan amortization schedule that shows principal and interest of each payment over the life of the loan.
I don’t know. The market changed, sure, but a million in that house? Even for Texas I don’t know, less money less risk should be talked about, and doing as much work yourself helps. Maybe not a fair assessment but it’s your situation, I get it.
It wasn't the house.....it was the location.
Looked like near downtown Austin ( Maybe Clarksville or Enfield area)
It depends on the location. You can't price empty lots just based on the state they are located in. Prime locations in Austin go for much more than lots on the outskirts of Austin, partially due to the fact that Austin has an inadequate highway system, and has encountered astronomical growth due the tech industry moving into the area. Also, a lot of those tech workers were transferred from high cost areas like Silicon Valley and they bring boatloads of money with them when shopping for a new home. Same thing happened to Las Vegas the last few years as remote working has become more common. Plus, Matt is building a much higher quality of home than average.
the only guy I knew that did well on spec houses built them when the market was soft. In other words, he wasn't trying to sell them, he built them to keep his crews busy. Which means he built them with cash on hand, and sold them when the market got hot again. Not all of us are quite that wealthy.
I know i could never afford to hire you but i wish I could someday hire someone who would understand the important details that you do
*_Exactly. Why does it always seem to be that all of the 'DIY RUclips superstars' tend to live hundreds & hundreds of miles from me? : ( LOL_*
Larger spect builders tend to build some of the best value for the money houses available. Developers typically make their money on the development and don't give a crap about the houses they put up. Custom homes tend to be insanely expensive. That leaves spec houses, particularly those that are building several houses at a time, as the best value option. Edit: I just wanted to add I don't know of any good spec builders that are also first generation builders. So there is that.
A group of builders in my area built specs that are nicer than most of the custom builders in my area. Meanwhile no dealing with customers during the build process. Doesnt seem like such a bad gig but what do I know. Matt is the expert
you are correct,
Good video. And 👍👍 for the audio quality from a car.
Thanks! 👍
I assume this sage advice also applies to so called “Flips”, especially in high dollar markets. Uncovering unexpected issues that blow your budget, or a change in market conditions, such as we’ve seen in rising interest rates, can take away profit in a heartbeat. In my state you have to be licensed as a general contractor to build a spec but any Joe can do a flip. Buyer beware, on both specs and flips, look past the staging and finishing. Get a good inspection by an unaffiliated third party before you close. That goes for plumbing and mechanical too. Don’t get caught in the hype of a “hot market” and make a bad decision.
Appreciate the content and you sharing your hard learned lessons via difficult experiences. Definitely agree with you on the spec houses... buyers and agents don't know what to look for regarding the build quality and in many cases only compare homes based on monthly payment and amount of sq ft. Amazes me what people are paying for junk homes that have been hacked by the last 5 different owners. Then pass on the custom one owner home because it's "dated".
The thing about spec building is everything comes down to efficiency. Trying to cut costs while trying to keep quality high is very hard.
we have 3 or 4 builders in my area building "spec" homes. they did well during the covid market and all refused to do custom homes to cash in the savings and the bidding wars. excuse was "supply shortage". ...... now, they all have homes "sitting" for months. one car garage bungalows and one car garage 2 storeys shoved in a tight neighborhood with no custom options, these greedy bastards deserve it.
Clients take similar risks. They can upgrade insulation and other components behind the walls but when they put the house on the market what matters most to buyers is what is visible.
I 100% thought “Spec” was short for specification, IE here are your cookie cutter choices, specifications already decided. But knowing it’s an even deeper more logical meaning of the housing market we see produced in our suburbs, puts things into perspective. Learn something new everyday.
I was thinking about doing a spec house, but my fear right now is not getting at least close to my asking price, but how long will it sit while I have to pay the interest on it? I think everyone right now is trying to figure out where the economy is going and until that happens I'm not going to do it.
Great advice 💪
Great video Matt- speaking of healthy habits/families definitely not a good idea to do videos while driving my friend
Not in the trades but that makes a lot of sense. Availability and price the key factors especially for younger people starting out. Logic will tell me your custom clients little older little more established and can afford the upgrades.
It's funny now how we look at houses basically the same way we look at consumer products. We don't think of them as places where we live, they're just stuff we use and leave once we're done with it. It's sad because construction is energy intensive, creates a lot of GHGs, and when it's to build so cheap you got to demolish and start over that much more often, it's all the more silly.
The two biggest mistakes we have made with housing : we've let it become a consumer product, and we've let it become an investment tool. Neither of these things contribute to better building quality and affordable places to live.
This needs to change.
I don't trust builders, real estate agents or inspectors at this point.
Unfortunately unless you have $1M+ to spend on a new house, most of em are crap these days. Even then, the high price doesn't guarantee it's a good house.
Trust but verify.
thank you for the information you provide
I've seen some truly spectacular spec house fails in California, like an initial listing of $150M+ selling for 1/3 or less.
that's money laundering lol
Seems like the spec home market has some parallels to the used car market. Essentially, buyers must assume all spec homes are built to the lowest quality standards allowed and therefore offer a commensurate price. That's not a good market to be in if you care about providing quality products while also making a profit.
Matt admittedly got burned for a lot of money. That’s reason enough not to want build on spec in the future. But to suggest that spec houses are inherently not “well built” is ridiculous.
As someone looking to build, I definitely care more about the insulation, air tightness, and how good the windows are. Countertops can easily be changed.
How do you avoid a client who won't close on their custom house? They may have anticipated a certain interest rate, and eight months later, the current interest makes the house unaffordable to them.
A custom client has the construction loan in their name. So if they don’t close, their the ones paying interest not the builder.
I'd argue about that new truck being reliable. Those 90s trucks were pretty reliable.
Yeah but his point is now they're old, and can't compare to new truck.
specs are speculative so yes there is risk. but your example happened to be during the greatest market down turn in our life time, so not really the normal results. specs are necessary for builders to sell to the buyer who cant wait months for a build job. Yes specs are risky for down turns in the market but so are build jobs. How many stories do builders have of a huge expensive custom build job that the buyers cancel/walk away from and then you are stuck with the house to sell that isnt likely built to sell to the general public. basically in a down turn, you can make all homebuilding look risky because it is.
Excellent commentary.
Southwest Florida is about to be a major catastrophe with all the spec housing being built. I have always questioned the quality of these homes due to supply limitations, increased labor costs and shortage of labor available over the past couple years. Everything about the housing market here is screaming with red flags.
Sir were are some of the best places to seek out a partner / investor for building out a ADU that would be used for renting out Airbnb?
Looking for a nightmare, eh?
Further, realtors largely use so-called “comparables” which as you mentioned is based on pure appearance. Thus, quality homes are under-valued by hundreds of thousands. I built my custom homes nearly thirty years ago. Realtors have low-balled me and tried to steal it.
Realtors would change if appraisers had standards. The whole real estate industry is pretty rididculous.