IMO, Building custom homes on spec is not a great business due to:
Low margins, especially outside the ultra-luxury high-end market $10m+ (self-performing in LA may be necessary to achieve profitability)
Difficulty scaling due to the need for customization
Complex construction management with many variables to consider
Less reliable subcontractors in residential compared to commercial construction
100% vacant inventory until the house is sold
Regular income vs. equity/long-term capital gains that can be 1031 exchanged
Liability for construction defects within a 10-year timeframe in California
Challenging cash flow management due to the uncertainty of construction timelines and time on the market.
See my two tweets on this subject:
Mistakes Made in Design:
Mistakes Made In Estimating
Do you mind defining “custom home on spec”? How different is this than building spec homes?