Make sure your partner doesn't have other housing projects on the side that he is sending material and labor to. I knew a builder decades ago that was about to go into bankruptcy and built 5 more spec houses plus his own personal house. He diverted materials and labor from the bank funded spec homes to his own house which was done for almost free. The bank ended up owning the spec houses but not his personal house.

if the housing market in the area he wants to build in is hot like everyone says why does he need someone elses money?

why not the banks?

if the market is hot and he has sellable floorplans, location, subs/suppliers that will sell to him etc. then he should be able to walk in a bank and get a loan with a better value than a partner. no idea what a construction loan costs nowadays but it can't be much compared to a 60/40 (whatevah!) split.

last but not least, if he is a good builder why is he doing specs? where are his custom customers? if this market is hot, makes no sense to me. even specs in the market I keep hearing about should be sold before the lot is cleared, put up a sign and offer the ability to change colors and some minor stuff and it should sell of the prints alone.


just my perspective and experience.

That's the Short Answer.

Money could be tied up in it for a loooonnnngggg time too.

What price range home?
Define Burbs. Aledo or Amarillo?
Look at the plans and see if you want to live there, or if you can rent it.
20% wont leave any profit for the builder, so he will screw you to make a profit.
I would pay the subs myself, if you're handling the monies.
You will want a take off from the lumber company from the plans.
My son is a builder in Mobile AL and is building 12-15 a year in the 600-700K range. About 30% are spec, the rest custom. Their making 15%

Done plenty of these and you need to decide if you are going to be a lender, partner or a mixture of both. The terms and structure of the deal will be greatly determined by the relationship of the parties.

partnerships usually suck

I was thinking the same thing.
I know I am not either. Everytime I have done something like this it has not turned out good for me.
I hate to rely on someone elses expertise to make me money.

If he doesn't have good reliable trades, subs don't even think about it. The best project manager in the world sucks with his subs.


I can say this from experience , I contemplated murder a few times in 2015

haha you too? Life gets stressful when you have to think that way doesnt it.

the highest end builders start a lot of their homes as specs
right now they usually get a buyer pretty quick
it is easier to work for yourself, than a future homeowner

build it
then sell it

Spec house to me mean the cheapest of everything in and on the house
Just enough to meet spec

Never buy one

depends on location/neighborhood and any hoa rules to conform to.

smart builders do specs for the low-mid range buyer most times, some with great reps will do spec/custom build outs (you buy it framed in pretty much and get to pick all the high end stuff you want, at a price.) and hope they sell off the prints. takes a good realtor to pull this off on a regular basis.

there is not enough in a spec to make it a good "partnership" investment, you will be lucky to see 5% within a yr. maybe longer.
remember too that the builder will probably be paying themselves all through the process, hurry may not be in his plans either.

only way to make money in new homes is do presold customs, escrow acct. at the bank and a yr. to build at least. we took 9 months on avg. for approx 5,000sf avg on ours.
avg for ours was in the 20-25% net range on 1.5 million and up.

Been in home building and development 20yrs, spec homes built by Fortune 500 companies that advertise and have sales reps onsite 6days a week can lose money. You are starting in a hole working out. No way. And 20% is aggressive expectation.

Great info from some of the above posts.

Typically a respected builder can go to a bank and get a construction loan, they will need to provide a budget for construction and their loan is based off loan to value. Lets say the bank loans you $300,000 for construction costs..every time you draw from the loan per each part of construction interest payments kick in, and typically loan interest rate is around prime plus 1 percent. If you can pull 20% profit then good for you, some where along the line to me the builder is short on financing for a reason. PM me if you want to discuss, good money can be made but just as quickly lost.

We take 20mm dollar loans and interest starts day 1. We might not draw all loan allowance and still pay full boat. Thanks to Slick Willy's give a home to all who can steam a mirror, residential loans are tough.