Ever wanted to invest in new single-family real estate without dealing with all the back-and-forth of custom home building? Then, a spec house may be the answer.
What is a spec house?
Spec house is short for “speculative house” and refers to a home built without a specific buyer in mind. Instead, it’s built on “speculation” that it will sell for a profit once completed. In other words, it’s a new, move-in-ready home for a general homebuyer.
Spec house vs. model home
Spec homes shouldn’t be confused with model homes, which are built to showcase the design and features of homes in a new development. Here are the key differences:
| Spec home | Model house |
| Built to be sold ASAP | Built as a display house for marketing purposes and only sold once the rest of the subdivision is claimed |
| Sold brand new | Sold as-is (with potential wear and tear from home tours) |
| Tends to cost slightly more | Tends to cost slightly less |
How much do spec houses cost?
Spec home prices vary widely by type, size, and market. However, they are generally less than a custom home on a per-square-foot (PSF) basis.
Factors determining the price of a spec house
The top factors that influence the price of a spec home include:
- Local home supply and demand
- House design
- Material quality
- House size (in SF)
- Local labor costs
- Lot size
- Included amenities and upgrades
Is the price of a spec house negotiable?
Unlike other home types, spec homes often have a set price since developers aim to maintain the value of other homes in the development.
However, even if the purchase price isn’t negotiable, you can always negotiate other sales terms, such as closing costs, closing timeline, upgrades, and concessions.
How much does it cost to build a spec home?
As a spec home builder, your construction costs will largely depend on the costs of land, materials, labor, and permits. On top of that, you’ll need to account for financing, holding, and selling costs. Run a discounted cash flow (DCF) analysis to estimate your profit margins.
Pros and cons of spec houses
Before investing in a spec home, consider the benefits and potential drawbacks:
Pros of spec houses
| Pros | Description |
| Lower acquisition costs | Compared to custom builds, spec homes cost less due to their streamlined construction from standard designs and materials. |
| Faster turnaround | Spec homes can be built faster, attracting buyers seeking immediate housing, which results in a faster ROI for investors. |
| Move-in ready condition | Turnkey homes are more convenient for investors and buyers who don’t want to go through the entire custom-build process. |
| Strong resale potential | The generic design of spec homes appeals to a wider buyer market, driving down your risk of not being able to resell. |
| Predictable construction timeline | After building your first spec house, you’ll have a predictable construction timeline that you can rely on for similar future projects. |
Cons of spec houses
| Cons | Description |
| Limited customization | The lack of customization options may be a turn-off for some buyers. |
| Buyer preference changes | Spec home designs and features must match local buyer preferences. If those change, you could struggle to sell the house. |
| Upfront cost and risk | As a spec home investor, you take on a significant upfront cost and risk before locking in a buyer or tenant. |
| High holding costs | If a spec home doesn’t sell as quickly as expected, you’ll be on the hook for tax, insurance, and maintenance costs till it does. |
| Construction risks and delays | With construction, there’s always a risk that you’ll run into complications and delays, which could hurt your final ROI. |
How to buy a spec house in simple steps
To buy a spec home, follow these steps:
- Partner with a Realtor: They can help you navigate the real estate market and access the MLS, where many spec homes are listed for sale.
- Search for spec homes online: On top of searching the MLS, search online real estate marketplaces like Zillow and builders’ websites for spec home listings.
- Schedule home tours: Compare designs, features, and upgrades and determine which spec homes meet your investment criteria.
- Negotiate a purchase offer: Once you settle on a spec home to buy, negotiate a favorable purchase offer with the seller. Consider price, closing costs, concessions, etc.
- Get a home inspection: Even though the home is brand new, conduct a home inspection to ensure nothing was missed during the construction process.
- Arrange financing: Make sure you have a mortgage or cash lined up for the purchase to ensure a smooth transaction.
- Close the deal: Sign closing documents and collect the deed and house keys.
Step-by-step guide to building and selling spec houses
To take your spec home investing to the next level, here’s how to build and sell them:
- Find a profitable location: This requires deep research into demographic trends, local zoning laws, permit requirements, and the cost of land, labor, and materials. Aim for a market that ranks high in each of these areas.
- Choose the right home designs: Select home layouts and features that match the buyer preferences of your market, but prioritize those with the highest ROI. Check the annual Cost vs. Value report as a starting point.
- Partner with trusted contractors: Get multiple bids per job and check contractors’ reviews from past clients. You want reliable partners with experience building quality spec homes on schedule.
- Manage construction timelines and budgets: Monitor construction progress and make schedule and budget changes as needed. The sooner you detect potential challenges, the sooner you can address them.
- Use effective pricing and marketing tactics: Once the spec home is built, get it professionally photographed and marketed. Set a competitive listing price based on local market conditions and consider attracting buyers with incentive programs. Hire a real estate agent to help.
When is the right time to buy a spec house?
The right time to buy a spec home depends on your investing strategy and market conditions. However, it’s generally best to buy when buyer competition is lowest, such as in the winter when people don’t like moving. If you buy at the end of the year, you may also be able to buy at a discount to help the developer meet their annual sales goals.
Key considerations when buying a spec house
That said, before buying a spec home, do the following:
Research local builders
Look for a builder with a strong track record. This means they have a positive reputation in the industry and homeowners are generally satisfied with the spec homes they build.
Visit homes with a realtor
Partner with a reputable real estate agent who knows the local new build market. They can help you tour spec homes and compare their build quality and finishes.
Check builder reviews
Read online reviews from a builder’s past clients. If most customers are satisfied with the work, you can have more confidence in a positive relationship.
Understand closing process
Carefully review the closing process with the builder to avoid any surprises. This involves confirming closing dates, final walkthroughs, and financing arrangements.
Negotiate warranty terms
Clarify what the builder warranty covers—and for how long. Be wary of builders who won’t cover basic structural elements and utilities for at least two years, which could indicate shoddy work.
Top tips for spec house investors
As an investor, you can also build a spec home from the ground up to resell. But before you do, follow these tips:
Research buyer preferences
Every market is different. Homebuyers in warmer states (like Texas and California) may prioritize pools, while buyers in colder states (like Minnesota and Alaska) may prioritize garage space. Do your research to identify local buyer preferences and build spec homes accordingly.
Pay attention to trends, too. If you notice the market moving in a certain direction (e.g., increasing demand for hot tubs), incorporate this into your spec home design.
Secure favorable land deals
In real estate, it’s often said that you make your money when you buy. This holds for spec homes as well. If you can secure a land deal at a below-market price, you have a better chance of turning a profit when you resell—especially if you choose an appreciating market.
To ensure you get a good deal, work with a reputable Realtor who specializes in spec homes and run a comp analysis of recently sold properties nearby that are similar to yours.
Understand local zoning regulations
The last thing you want is to buy land only to realize that you can’t build on it. To avoid this, research zoning laws and building permit requirements upfront. In addition, ask city officials about the area’s General Plan, which outlines future development plans. That way, you can try to avoid future zoning challenges as well.
Manage risk with smart budgeting and exit strategies
Building spec homes comes with many risks—The trick is to manage them well. For example, don’t invest in home features that local buyers don’t care about.
Similarly, plan for contingencies. Schedule time for potential delays and set aside part of your construction budget for cost overruns. You never know when inclement weather will push back your timeline, or supply shortages will drive up costs.
Build for efficiency with cost-effective designs and materials
Finally, don’t be afraid to choose cost-efficient floor plans and materials (within buyers’ preferences, of course). For example, choose open floor plans that minimize your construction costs per square foot (PSF). Similarly, opt for materials that are affordable but functional. The goal is to stretch your investment dollars as far as possible without sacrificing quality.
Is a spec home a good investment?
A spec home can be a good investment—It all depends on the market and the deal details. However, if you can manage construction timelines and costs well, you’re in a good position. There will always be demand for move-in ready homes. After all, people need somewhere to live, and many don’t want to deal with the hassle and timeline of custom building.
According to an NYU Stern report, homebuilders (many of which build spec homes) have an average gross profit margin of 24.97% as of January 2025.
Conclusion
Ultimately, spec homes can be a lucrative investment with a faster, more predictable ROI than custom builds. Just make sure you do your due diligence, secure a favorable land deal, and manage your budget and construction schedule wisely. If you get those fundamentals right, profits are more likely to follow.
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