Investors who specialize in new construction have the option of building a “spec” home or financing a new property already under contract. Both provide opportunities for the real estate investor but there are a few things to consider when deciding which type of property in which to invest.investing in spec homes

Similar to an existing home, real estate investors who buy new construction will typically have a buyer lined up and a contract in hand. As such, the buyer will have previously applied for a standard mortgage from their lender and pay the builder the asking price once the property is completed. If there is no contract on the home and the property has yet to be completed, the home is considered “speculative” hence the “spec” moniker.

A spec property is built based upon the assumption that while the home is being built the builder or developer will find a buyer. A spec builder takes on a bit more risk as there is no contract of sale involved at the outset but makes an educated assumption that current market forces indicate a sale for the asking price is imminent. If the home does not sell when expected the investor loses money as each month passes when the interest payments must be made to the bank or private investor.

A spec home isn’t usually found surrounded by acres of undeveloped land but in or nearby recently developed neighborhoods. Contrary to a home in a new development where the builder offers buyers a set of predetermined floor plans, price ranges and options. A spec home’s appearance, floor plan and ultimate asking price is all up to the builder.  A spec home can be similar to surrounding real estate yet unique in its own way with its own characteristics and amenities.

Investing in a spec home can provide some healthy profits but should be undertaken with eyes wide open and all contingencies considered. Yet investing in new construction is a way to take advantage of a growing market and still provide a competitive price point.