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Real estate investing is an enticing game for anyone in these days of housing shortages and booming prices. But how can someone invest in real estate when they’re struggling to buy a house for themselves in the first place?

There are many ways to invest in real estate today without buying a rental property, from real estate investment trusts (REITs) to buying a spec home. Spec homes, or “speculative homes,” are ones that are built quickly and cheaply in hopes of attracting a new owner. There are pros and cons to buying a spec home, but they can be a path to homeownership for those who are struggling to find one.

What is a spec house?

A spec house is one built by a developer or builder on the speculation that it will sell for a profit easily. They’re built to be move-in ready and feature common amenities that most homebuyers desire. The whole goal is to build and sell them quickly, so developers note important real estate trends, especially in the local market, to make these affordable homes as attractive as possible to as many potential buyers as possible. Many spec homes offer trendy features like open layouts, kitchen islands, or walk-in showers.

Often, spec homes are the first few offerings in a much larger planned development. They’re built on tracts of land that will be part of a future community, giving those buyers early access without having to wait months or even years for their home to be built.

Spec homes vs. model homes vs. custom homes

Sometimes, these terms are used interchangeably, so it’s important to clarify the differences.

Model homes, like spec houses, tend to be constructed on large parcels of land to illustrate the potential of a future development. Model homes tend to showcase a few different “styles” that a developer will build on that subdivision, and many are built without any specific buyer in mind. As such, model homes tend to be mass-produced quickly, in cookie-cutter fashion to meet a few identical floor plans, and tend to use cheaper materials. They’re the rank-and-file of any new development and have to go up fast to make up the meat and potatoes of a new development.

Spec homes, on the other hand, are made to appeal to a mass audience, with nicer features and amenities so that they’ll sell quickly. As such, model homes tend to be cheaper than spec homes.

A custom home, meanwhile, is basically the opposite of both a spec home and model home. It’s built for a specific client who is very involved in the design and build process to get exactly what they want.��

How much does a spec home cost?

Although spec homes typically cost less per square foot than a custom-built home or existing house, you’ll still pay more than a model home. Nonetheless, the idea is to give buyers a good deal on a quality house. Usually, spec homes range in price depending on the following factors:

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• Availability of land
• Comparative home values in the neighborhood
• Amenities and upgrades
• Home design
• Material quality
• Square footage
• Buyer demand
• Cost of labor

As such, it’s difficult to determine exactly what a spec home will cost. Considering it’s usually cheaper to build than buy a house (especially for developers), you’ll usually find spec homes are less expensive than other pre-existing houses in the area. However, depending on demand for the house, you may have little room for negotiation. Spec homes tend to come with a sticker price that you can pay as is or move on.

Pros and cons of buying a spec house

So, what are the pros and cons of buying a spec house? There are several of each.

Pros

• Move-in ready: Sure, you may want to change the floor plan a bit, but generally, a spec house is move-in ready. Everything will be in good shape, from cabinetry and countertops to the HVAC and roof.

• Affordability: Spec homes tend to be much less expensive than custom homes since builders make strides to control building costs to effect max profit at the smallest expense.

• Availability: Unlike model homes or custom-built homes, you typically don’t have to wait very long for a spec house to be completed. Even if you work with a builder to include some custom features, spec homes tend to go up quickly.

Cons

• Location: Spec homes are going up where they’re going up. Much of the time, that’s in less desirable or basically yet-to-exist neighborhoods. If neighborhood choice is important to you, this may not be the option for you.

• Limited customization: While you may be able to make a few choices or customizations to a spec home, generally, you’re just going along with the builder’s vision. You can always remodel later, but that’s more money out of your pocket.

• Set floor plan: The customizations you can make are to things like fixtures or lighting — you won’t be able to change the general floor plan.

• Paying for things you don’t need: Since a spec house is basically following a developer blueprint, you may wind up with things you don’t want or need, like a three-car garage or walk-in closets. If you don’t use the amenities, it may not justify the price tag.

How to buy a spec home

Buying a spec home is similar to the traditional home-buying process. Just like any other real estate purchase, you’ll need to figure out how much house you can afford and get pre-approved for a mortgage. This shows that you’re serious about buying a home and proves to developers that you can actually afford to buy a spec home.

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You can find spec homes on the Multiple Listing Service (MLS) or opt to work with a real estate agent to make connections and find a spec home that looks right for you. Depending on whether a spec home is already standing or not, you could get the opportunity to request a few customizations or upgrades before building, or learn more about the materials and design used in the home.��

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While you may have little wiggle room to negotiate the price of a home, you could work with an agent to get concessions on closing costs or ask a developer to cover the cost of certain upgrades. It all depends on local buyer demand. Still, these homes tend to be in very good condition since they’re brand new, so you won’t have to worry about remodeling the kitchen or putting a new roof on any time soon. As such, the move-in and closing process tends to be a bit quicker than traditional home transactions.

Should you build a spec home?

While building a home tends to be cheaper than buying a home, it doesn’t really make sense to build a spec home unless you plan to build more than one. Spec homes are built by professionals who plan to build a lot of them and flip them for profit. If you just want to build a home for you and your family to live in, it makes little sense to use a developer’s blueprints. Sure, you can get some inspiration by looking at other floor plans, but if you’re taking the time to build a custom house, then build it to your preferred specifications.

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Spec homes offer potential homebuyers a more affordable path to homeownership, so long as they’re willing to make a few concessions. Spec houses tend to be built in emerging neighborhoods that may take years to see any kind of property value growth, and don’t give you the same flexibility as custom homes. Nonetheless, if you like the floor plan, you’ll be able to get a high-quality, brand new home for a much better price than a traditional home, especially in some of the nation’s most in-demand markets.