Entering the spec home market is a strategic move for many in the building industry aiming to develop their own projects. One of the hurdles in this journey is the financing aspect, which may initially seem complex.
What is a Spec Home?
A spec home, short for speculative house, is a new home built by a builder without a specific buyer in mind. The builder designs the home to appeal to a wide range of buyers and make a profit. Spec homes are move-in ready, and are often constructed in high-demand areas/fast-growing areas.
Beginning Your Spec Home Venture
To start a spec home build, you will need to understand how to correctly acquire finance for the project. A significant portion of financing for spec builds, around 90%, is often sourced from non-bank lenders. This preference arises from the cautious approach of traditional banks towards spec builds, which are sometimes viewed as less profitable ventures. Non-bank lenders are more open to these projects, providing more accommodating terms for builders and developers. Here at Construction Loans, we work with a wide range of non-bank lenders and we know the lenders who are keen to work with spec home builders.
Navigating Financing
The financing process for a spec home usually involves a substantial initial deposit on the section, about 50%, followed by staged financing for the build itself. The specifics of this process can vary based on the location of your project and its final valuation. Sitting down with your adviser will help you structure the lending accordingly, taking into consideration your cash flow requirements, future projects, deposit amount, etc.
Importance of Location
The location of your project plays a crucial role in determining the financing conditions and requirements. For example, spec homes in various regions such as Queenstown, Christchurch, or Auckland may have different valuation criteria and deposit requirements. Being informed about these regional distinctions is crucial when planning your financing strategy. Most spec home builders are located in the region, and we have advisers across the country who are available to help with region-specific knowledge.
If you’re considering a spec home project, thorough preparation and a deep understanding of your financing options are essential. The team at ConstructionLoans.co.nz has extensive experience in assisting builders and developers with the financing of spec home projects. We provide tailored support that aligns with both the regional market conditions and the unique needs of your project. For assistance with your spec home financing needs, contact our team at 0800 100 300 or visit our website, www.constructionloans.co.nz. We're here to ensure you have the detailed guidance and support needed for your project's success.
