Developing a speculative construction (also known as spec construction) project from scratch can be a rewarding experience both personally and professionally. And, if everything goes according to plans and budgets, it can be financially rewarding, too!

However, for many first-time speculative home builders in the residential homes industry, the entire construction process is often complicated and risky.

Unfortunately, for many of those builders, their first time may be their last time, too.

Below are some of the most common mistakes made by beginner builders – along with some of the best ways to avoid them!

Beginner Builder Mistake #1: Underestimating Construction Costs For a Spec House

One of the most common mistakes that first-time spec home builders make is underestimating the costs of building a residential property from scratch.

Not having a firm understanding of the expenses associated with a project of this scope before construction begins, often leads to unexpected (and sometimes avoidable) expenses. Before long, these expenses begin to devour the limited budgets. When that happens, the trend continues until it diminishes the profit margin.

To avoid this costly mistake, it’s important for first-time spec builders to establish a realistic budget that’s highly detailed and accurately accounts for every part of the project, including all contractor, materials and permit costs.

Beginner Builder Mistake #2: Ignoring Current Spec Home Market Trends

Another common misstep that many novice spec builders make is not paying attention to the current housing statistics and real estate market trends.

If their construction plans do not align with current mortgage rates, population shifts, single-family home demands, growth rates of housing inventories and other current or emerging trends it may cause significant struggles when the time comes to sell the completed property.

Staying informed and up to date on the current market trends allows new spec builders to make better decisions with their current projects and be better prepared for their future builds.

Beginner Builder Mistake #3: Failing to Secure Permits For Spec Homes

Constructing a new residential property requires a variety of necessary permits.

In addition to the building or construction permit, a typical build requires electrical, plumbing and mechanical permits, too. If a spec property is going to offer such amenities such as pools and decks, builders will need to obtain the necessary permits for those additions.

Failure to secure any of the required permits can result in construction delays and costly fines that could negatively impact the entire project’s bottom line.

First-time spec builders should consult their local government agencies and officials to determine which permits are required, factor in their respective costs into the budget, and obtain the necessary permits before they break ground on their project.

Beginner Builder Mistake #4: Building Spec Homes That Don’t Reflect The Neighborhood

While it’s always a good idea to build spec homes that meet the needs and wants of a potential buyer, it’s just as important to ensure that the finished property reflects the neighborhood.

Building a large, expensive property in a neighborhood composed of mid-size homes that are more affordable to the average resident may make it difficult to sell.

Rather than run the risk of selling a large property at a loss, inexperienced spec home builders need to keep their builds in line with the neighborhood’s size and average price range.

Beginner Builder Mistake #5: Rushing The Spec Home Building Process

In an effort to bring a project in before deadline and under budget, first-time builders may be tempted to speed up the process. This decision is even more tempting because it could potentially allow the builder to put the home on the market sooner than originally planned.

As attractive and rewarding as this option sounds, it’s something a seasoned builder would not do.

Rushing through the project can cause mistakes that lead to poor quality construction. Eventually, that poor workmanship is evident when the new home needs to be immediately repaired after occupancy. If a spec builder gets a reputation for poor workmanship and low-quality homes, they won’t last long in the industry. And they may end up in court.

Taking the necessary time to ensure that each project produces a quality is key for any spec builder who wants to enjoy a thriving career.

Help For First-Time Spec Home Builders

We hope this article shed some light on the many pitfalls that await inexperienced spec builders.

While we hope our article helps future builders avoid these mistakes, we understand that first-time spec builders need more help than just the advice offered above.

With Snap.Build, first-time spec builders can easily secure the funding they need to make their visions a reality. Through our non-recourse loans, first-time builders can start their projects more quickly, while our project management tools allow them to efficiently and effectively run their own back office without the need of full-time staff. Plus, they also have access to our in-house consultant for additional advice and guidance.

If you’re about to embark on your first spec home construction build, Snap.Build is here to provide you with a strong foundation for success!

Apply for funding today.