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Naples Florida Spec Home Building – A Few Thoughts

Posted on Monday, April 16, 2012

Speculative home building in Naples, Florida may be on the rise with the recent resurgence in the local market. New construction inventory is at a premium since the recent real estate downturn significantly decreased new home building in the area – although some developments like Lely continue to do very well. The “big boys” (big construction companies) are making public announcements and pulling permits for late 2012 ground breaking. It feels like spec home building is worth a try for real estate investment investors. Let’s take a look at this market right now and understand some of the positives and negatives.
First the Naples market. Ask your realtor to take a look at land acquisition prices and target selling prices for a particular area. Remember this is a hyper local activity so do not use broad averages across the county – get focused. Then talk to a builder and understand “ALL IN” construction prices. Do the math. You may find this spec building is tougher than it looks with many target locations too pricey to make the math work. Sure you can make money but you may make money in other investments with less effort so in our minds you need to see a significant estimated target return.
What about the upside and downside? Let’s take a look at what could go wrong. For starters you might buy it wrong – and this is the easiest risk to manage. Set your target acquisition price and stick to it. There will be plenty of other surprises along the way so do not buy it wrong.

The builder could get it wrong. Find ways to get your builder on the same page – like profit sharing for example – so he is equally motivated as you to manage cost and quality and target profits.

The market could sink or your estimated selling price was just wrong or both. After all you need to sell the thing to make this work. Consider keeping your build timeframe short to minimize the risk of the market moving too far away from you AND have an exit plan you can live it – maybe you rent it for a while.

What could go right? One thing already going right for many spec builders right now is selling prices are moving up more quickly than planned. The Sunshine MLS shows a 20%+ uptick in average selling prices since January 1, 2012 – three months of a real spike. Will it hold? Who knows, but if you were planning on more modest returns there is now more money in the spec builders pocket.
Spec home building is not easy – a business endeavor with lots of estimates, big dreams and few guarantees BUT sometimes there is a winning arrangement. Take a look at this with your Realtor and see what you find.
Thoughts on this one?
Have a great week everyone.

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No legal or investment advice or suggestions are being given in this Blog. Actual real estate price and sales results are subject to market forces and are not completely predictable. Please consult a lawyer or investment advisor for such legal and investment advice. The writings of this Blog are intended for the sole use of our clients.

Mark Goebel, PA is a REALTOR with Coldwell Banker on 5th avenue in Naples, Florida with 35+ years of visiting and living in Naples. After 25 years at Accenture, Mark retired as a managing director and spends his time helping non profits and building a Naples real estate team with his wife Nan. Talk to Mark and Nan about life in Naples and why they chose this place to live full-time over all others and enjoy Naples real estate.

Coldwell Banker, Broker Nancy MacDonald

Mark Goebel, PA REALTOR
Mobile: 239.595.3921
Email: mark.c.goebel@gmail.com
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