Custom and Arizona Spec Home Financing is one of the primary concerns for builders deciding which route to go, but there are many factors which weigh into the decision. Learn pros and cons of each to decide which is right for you.
1. Debt and loans. To start with the basics, a custom house is one built with a specific buyer in mind. The individual is requesting that you build the house on their behalf. As such, they’re responsible for securing the funding. However, your credit and financials are often required by their lending company. There are some exceptions to this. For example, large builders who own the land and/or are building out multiple houses at once will sometimes finance the build, though they’re the exception rather than the rule. When it comes to speculative properties, or specs, it’s all on you. You don’t have a buyer yet. Ergo, finding and qualifying for Arizona Spec Home Financing is totally on you.
2. Fiscal management. In either case, funds are usually disbursed as draws. As you reach specific stages of the build, money is released. However, if you’re working in speculative builds, it’s on you and your team to meet deadlines. With custom builds, you’re also reliant on the homeowner to make decisions throughout the process, which can delay milestones and payments. In these cases, you may have to secure your own financing to cover materials, sub-contractors, and other expenses while you wait for payment.
3. Decision-making. As a custom builder, you’re working with people who have likely never built a house before and this will be the biggest investment they ever make. Some may want to be involved in every decision, change their minds repeatedly, or reject work that’s been done. As such, you’ll need top-tier people and communication skills to keep things moving forward without issues. With speculative properties, the decisions start and end with you.
4. Exit. The nice thing about custom options is that you already have a buyer. The exit is natural. When you’re done building and collect your last payment, you’re done. When you work with speculative properties, you don’t have a buyer. There’s always some chance you’ll get stuck with a completed house and nobody to take it. In these cases, you may need to convert your Arizona Spec Home Financing into a loan with longer term, lower the price to attract buyers, hold it as a rental, or come up with alternate ideas to facilitate your exit.
With Custom Builds, Complaints Surround People Issues
Hands-down, the biggest complaints builders have surrounding custom builds relate to the people involved. There may be dueling spouses with different ideas on how to approach something or challenges which arise. As the builder, you may have the solution in mind within minutes, but you can get stuck waiting days or weeks while the homeowners and architect get on board and then wait even longer for clearance and/ or permits.
Speculative builders avoid people-related headaches but need specialized funding.
Given that you’re at the helm for a speculative build, people issues and delays caused by having many cooks in the kitchen are not an issue. However, you will be responsible for finding your own Arizona Spec Home Financing, and banks don’t usually like to fund these deals. The good news is, Arizona Hard Money Lenders do. Ergo, you can get started working your own projects, even if you don’t have a nest egg to draw from or great credit.
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis Dahlberg Broker/RI/CEO
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.