Finished my first spec 11 days early because of a choice made before closing

1,720 square feet, three bed two bath, single story, small city in the middle of the country where the median is around 350. Sold at 392 with a 26 day marketing period.

Numbers as they landed:

lot: 48k, cash
hard costs: 244k, fixed price contract, two change orders totaling 4,100 (both mine, both stupid, a bigger island and a different tile)
soft costs: 31k including engineering, permits, utility connections, builder's risk insurance, and the survey
carry: construction loan at a rate I'd rather not repeat, interest reserve funded at closing, total interest paid 14,900 over the build
sale costs: 20,500 including commission and my share of closing
net to me: about 30k over ten months on 63k of cash in

What made it work was a thing I did in diligence and almost didn't. Before closing on the lot I paid an engineer 2,400 to do a preliminary grading and drainage review and tell me what the county would require. He came back saying the disturbed area would land just under the stormwater threshold if I kept the driveway to 12 feet and pulled the house four feet forward. That's the whole difference. The lot next door, same size, sold to someone who is now installing underground chambers.

The part that nearly broke it was the HVAC equipment. Ordered late, arrived six weeks after promised, and for a while it looked like I'd close out everything else and sit with a finished house I couldn't get a certificate of occupancy on. My builder found a smaller distributor with the right tonnage in stock at a 900 premium and we ate it. If that hadn't worked I'd have added two months of carry, about 3k, plus a spring listing turning into a summer listing.

What I'd keep: paying an engineer before I own the dirt. 2,400 to find out what the site will cost me was the best money in the deal.

What I'd change: I'd have ordered long lead equipment at framing instead of at rough-in. Nobody told me and I didn't ask.

2 replies

1dmitri_v6CapitalPRO6

The pre-closing engineering review is the part I'd want to know how you papered. Did you have a due diligence period in the lot contract long enough for the engineer to work, and was your earnest money refundable during it? That's the mechanism that makes the 2,400 a real option rather than a sunk cost, and how the contingency is written matters a lot. Land contracts vary a lot by state and by seller, so anyone copying this should have their own attorney look at the contingency language.

Also curious whether you had the engineer's opinion in writing or just a phone conversation. If the county had come back differently after you closed, a written scope is what you'd have to point at.

1samantha_ruizAU4APRO6

30k on 63k over ten months is a real outcome, and I want to push on the HVAC part because that's where I'd have lost the deal. You found stock at a 900 premium. What if you hadn't? You priced two extra months at 3k of carry, but a spring to summer listing shift in a 300k median market can be worth more than 3k in price, and your interest reserve was funded at closing for a defined term. If the build ran past the term you'd have been negotiating an extension with the lender mid-project, which is not a strong position.

So the honest read is that your win had a soft spot you covered with luck plus a good builder. The lesson about ordering at framing is the right one. I'd add asking your lender up front what the extension terms look like, in writing, before you need them.

Finished my first spec 11 days early because of a choice made before closing

2 replies