Speculative Construction vs. Pre-Sold Homes: Which Path Is Right for Oregon Builders?

In Oregon’s evolving housing market, builders and investors often face a strategic decision: pursue speculative construction (spec builds) or focus on pre-sold, contract builds designed for individual buyers. Both approaches have merit, but understanding the differences and having the right financing strategy can make all the difference in today’s competitive environment.

At Cetan Funds, we work with builders and investors every day who are navigating this choice. Here’s a look at how spec and pre-sold construction compare, the pros and cons of each, and how the right financing partner can position builders for success.

What is the Difference Between Speculative Construction and Pre-Sold Homes?#

In real estate, the term “spec build” is short for “speculative build.” This strategy involves constructing a home or small multi-family unit without a buyer secured in advance, with the intent to sell for a profit once completed. The objective is simple: deliver a move-in-ready home that attracts interest and sells quickly once it hits the market. The builder selects popular layouts, features, and finishes with the goal of appealing to a wide range of potential buyers. 

Spec homes should not be confused with model homes, which are built solely as display properties to showcase the design and features of homes in a new development and are typically sold only after serving their marketing purpose.

Conversely, pre-sold or contract builds secure a buyer before construction begins. Builders will then work to ensure the floor plans, finishes, and design details are tailored to the buyer’s preferences and customized to their vision.

Both models have clear advantages, but they serve different goals. Spec construction favors speed, efficiency, and creative control, while pre-sold projects prioritize guaranteed sales and predictable cash flow. In this post, we will explore the pros and cons of each approach and show how the right financing partner can set builders up for success.

What are the Advantages of Speculative Construction?#

Speculative construction delivers numerous advantages to homebuilders and real estate investors, especially in high-demand housing markets like Oregon. Here are a few that come to mind:

• Creative Freedom and Control: Spec builders have complete say over the home’s design, finishes, and schedule. They can use their market knowledge to build homes that reflect buyer trends, incorporate efficient layouts, and showcase their craftsmanship without waiting on client approvals or navigating change orders.
• Efficiency and Speed: Without client decisions slowing down the process, builders can break ground immediately and move projects forward without interruption. This often results in faster completion timelines, which can be critical in competitive housing markets.
• Economies of Scale: Builders constructing multiple spec homes at once can purchase materials in bulk, keep subcontractors continuously engaged, and streamline scheduling. This reduces per-unit costs and increases profitability.
• Market Opportunity and Higher Profit Potential: When timed well, spec construction can deliver strong margins. Builders who know their local markets can take advantage of rising prices and low inventory to sell quickly at favorable prices.
• Portfolio Growth: Completed spec homes serve as both inventory and marketing tools. Each finished home becomes a showcase for future buyers, strengthening a builder’s reputation and attracting new clients.

What are the Risks of Speculative Construction?#

Like most high-reward business strategies, speculative construction comes with risks, and builders must be clear about them from the start. Without a buyer secured in advance, spec builds carry more financial liability during the process than pre-sold builds. Builders are essentially betting that their vision will have broad appeal and sell quickly.

They take on land acquisition, permitting, materials, labor, and financing costs long before the home sells. If the market slows or the property sits unsold, carrying costs such as taxes, insurance, and loan payments can quickly erode profit margins. Staying closely tuned to local real estate trends and buyer preferences is essential to ensure the homes they build match market demand.

That said, this risk is often reduced in high-demand, inventory-constrained markets like Oregon and Southwest Washington, where new homes tend to sell quickly and where we at Cetan Funds focus our lending operations.

Another challenge is financing. Traditional banks are often hesitant to fund speculative projects without a committed buyer. Most banks discontinued construction loan programs for speculative construction long ago. This is where private lenders like Cetan Funds step in, offering the speed, flexibility, and local market expertise builders need to move forward with confidence.

What are the Advantages of Pre-Sold Homes?#

The most significant advantage of pre-sold projects is that they minimize financial risk by securing a buyer before construction even begins. Builders know their sale price in advance, which makes cash flow predictable and often makes it easier to secure bank financing, especially if the eventual homeowner purchases the lot upfront and contracts with the general contractor for their custom build.

Pre-sold homes also remove the uncertainty of marketing and selling after completion. There’s no need to stage the property or carry holding costs while waiting for an offer. For many builders, pre-sold projects are also personally rewarding, as they provide an opportunity to collaborate with clients and create a truly custom home that meets their needs.

What are the Risks of Pre-Sold Homes?#

Pre-sold or contract builds are a solid option for builders seeking reduced financial risk and greater certainty. However, they come with their own challenges. Working with individual homebuyers introduces a level of complexity not typically found in spec projects. Potential contract adjustments and design revisions, coupled with indecision and schedule disruptions, can delay completion and increase costs. 

Builders have less control over the process and must often balance their professional expertise with the buyer’s preferences, even when those preferences reduce efficiency. In many cases, they must compromise on their own design vision to meet client expectations.

Pre-sold builds can also limit profit potential, particularly in fast-moving markets. Because the sale price is locked in early, builders could miss out on market appreciation during construction. 

And while pre-sold projects reduce the risk of carrying unsold inventory, they are not entirely risk-free. If a buyer backs out mid-project, the builder may be left with an unfinished home featuring expensive customizations that are difficult to market to other buyers.

Does Speculative Construction Make Sense in Oregon?#

Oregon’s housing market continues to evolve, but with the population growing year over year, the state still faces a persistent housing shortage despite new policies designed to boost supply. In markets such as Bend, Eugene, and the Portland metro area, inventory remains tight and prices remain elevated. This environment can create ideal conditions for spec builders who manage costs effectively and select locations strategically.

Spec construction allows builders to deliver much-needed move-in-ready homes into the market quickly. For investors, this means faster sales and potentially higher returns, especially when building multiple homes in small subdivisions to take advantage of economies of scale.

How Can Cetan Funds Help Builders Succeed?#

At Cetan Funds, we know the Oregon housing market and specialize in construction and development loans tailored for real estate investors and builders who need flexible, short-term capital to act quickly. Our financing solutions make it possible to take on multiple projects at once, helping builders achieve economies of scale, reduce per-unit costs, and boost overall profitability. We are proud to have financed multiple spec building or development projects, like this recent residential three-home build in Oceanside, Oregon and this exciting new residential four-home project in Klamath Falls. 

Here are other ways Cetan Funds is helping builders succeed in Oregon:

• Speed to Market: Our local underwriting process allows for quick approvals and funding, so builders can break ground sooner and reduce carrying costs.
• Flexible Draw Schedules: We align draw schedules with actual construction milestones, improving cash flow and reducing out-of-pocket expenses.
• Tailored Loan Terms: Our 6- to 18-month private loans are ideal for speculative projects and subdivision developments, allowing builders to scale efficiently.
• Local Market Expertise: We know Oregon and Southwest Washington. Our team evaluates projects with on-the-ground insight to help builders choose the right locations.

Both speculative construction and pre-sold projects have a place in today’s residential market. Builders who want stability and guaranteed sales may lean toward pre-sold builds, while those seeking speed, creative freedom, and higher potential returns often choose spec construction.

With the right financing partner, either of these can be a powerful strategy for meeting housing demand and growing your real estate business. 

At Cetan Funds, we’re committed to helping Oregon builders and investors take advantage of market opportunities, move quickly, and maximize returns. If you are considering your next project, we invite you to connect with us. Together, we can find the financing solution that helps you bring more homes to the communities that need them most.