Spec homes and Eagles Nest 2 has left the building

I’m a spec home builder, a gambler.  Have been for 25 years, a quarter of a century. Spec homes are homes built on speculation, meaning before a buyer is located, before a contract is signed, a house being built with the funds of the builder/developer - borrowed or accrued.  It’s a risky business for a few reasons: it’s expensive to build a home, the costs associated over and above the construction such as interest on the construction loan, utilities, taxes commence and continue until the house is sold, the sale date and thus return of your working capital and hopefully profit is undetermined.  In sum, you tie up a bunch of money on a hunch that what you will build will sell.  And many times, it’s not just one house but a series of homes, or a series of homes and the infrastructure therein.  So to tie up a million is easy, to tie up ten’s of millions is not that hard either (not my level but easy to imagine).

I’ve been building spec homes forever.  It’s what I do, in all sorts of vibrant and sluggish real estate environments.  Sometimes the market actually changes underfoot during the 8 month effort so what was true when you started is new longer true when you finish. It works both ways - the market can get harder, sales slower, an emerging or matured buyers market.  Or the market can improve and accelerate, the most vivid example being Covid, when I would go into contract on a house in July and by the time I sold it it was worth 25% more but I was stuck at the price point of the original deal structure - that was never that fun, but great for the clients who saw $100k or more in appreciation before they actually owned the house, and to be honest, a sale is a sale, and lots of time the cost of construction hadn’t started its 50% increase climb so the profits were still there even at the lowest price.  

Some of those people who made deals with us in the spring and summer of 2020 have made a lot of money on our homes - half a million dollars in some cases on homes they owned for a few years - good timing for sure, but amazing homes without a doubt.

I venture down this line of thought because we just sold a house in north Fremont NY which was a pretty big gamble even for my risk-tolerant, market-knowledge self.  It was 9 acres or so, on an open hill, with a good vista view.  I paid $90k, which is possibly the most I ever paid for a piece of land in Sullivan County, and then selected an improved version of a modern home we had only ever built once, in 2015.  The home was bigger, ranch-style - meaning a larger house footprint, meaning higher foundation and roof costs.  We got it started last November and then bam, winter came December 8th and never left us, so it sat there until spring.

The house is unique - Unique for us, unique for the market.  What I’ve seen over the last few years is that interesting construction sells, especially if priced right.  I haven’t had the time or office personnel to experiment too widely so we stuck to our fun, interesting and tried and true models for a few years as I put humpty dumpty together again.  But my business success for the longest time was based on my willingness, and ability to be creative and take chances with our designs.  Which is actually really hard - a lot easier to just build the same house- interesting or not - over and over again.

So I bought an interesting piece of land, built an interesting house on it, experimented with interesting design ideas inside the home, spared no expense in terms of completing the home (landscaping, etc…) - really, just maximized my knowledge - both market and creative on the home.

And the first couple that saw it, bought it.  No delay, no realtor, no marketing effort or expense.  Monetized that mofo.  As I look at the profit and loss of that job this morning, it’s not a homerun by any stretch, but it’s a solid return, a return that didn’t really have the margins for a long or expensive sales cycle.  The deal took no more than 35 days from first showing to sales transfer.  So, it’s done.  A successful high stakes gambit into the ethereal world of real estate speculation, in the middle of nowhere, with a new design, and a lot of fun design experimentation.  It takes balls and it can go south very quickly.

So thank you Marco and Michele for just being really nice people, serious and trustworthy, partnering with me, who can be said to be the same under the right circumstances.

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