Would I Finance This Luxury Spec Home in Cape Coral?
- 9 hours ago
- 5 min read
Welcome to Naomi's Notebook #001
Welcome to the very first edition of Naomi's Notebooks! I figured it was about time I started sharing some of the real deals that land on my desk. After all, I spend my days reviewing projects, analyzing numbers, and helping investors avoid expensive mistakes... why not let you peek behind the curtain?
These aren't made-up scenarios or perfect success stories. They're real deals, real conversations, and real lending decisions. Some get a yes. Some get a no. Some just need a different plan. Hopefully, you'll pick up a few ideas you can use on your own projects.
Alright... let's see if this is a deal I'd finance.
Evaluating a Luxury Spec Home in Cape Coral
The Deal
A repeat borrower reached out to me about financing a luxury spec home in Cape Coral, Florida. He already owned the land free and clear after purchasing it for $205,000 and had invested nearly $60,000 into custom plans, engineering, and permitting. This wasn't just an idea anymore... he already had real money invested.
The plans called for a custom waterfront home just under 6,700 square feet with an estimated construction budget of $2.3 million. His projected resale? $4 million.
I could see why he was excited. The plans were gorgeous. Now... would I finance it? Let's find out...
My First Thought
The first number that caught my attention wasn't the $2.3 million construction budget, it was the $4 million resale. I live in this area. I know Cape Coral well, and right off the bat, that number didn't sound right. It wasn't impossible... but it definitely wasn't something I was going to accept at face value. Time to do some homework!
Digging Deeper
Before I even looked at the plans or started thinking about construction costs, I wanted to answer one question... What supports a $4 million resale? ... annnd that's usually when I refill my coffee and start pulling comps!
I pulled comparable sales, looked at the location, reviewed current market activity, and even spoke with a certified appraiser I trust. The conclusion was pretty simple. The market didn't support a $4 million resale. Why? Location... location... location!
This property sits in far northwest Cape Coral. It doesn't have direct Gulf access, the proposed home was more than twice the size of what buyers are typically purchasing in that area, and future apartments, townhomes, and condominiums are planned directly across the street. None of those things automatically kill a deal, but together they significantly shrink your buyer pool.
Could it appraise for around $3 million? Maybe. But, would it sell for $3 million? In my professional opinion... highly unlikely, leaning into no. And that is where investors get themselves into trouble.
An appraisal doesn't create demand. Buyers do. Even if an appraiser could support a $3 million appraisal, we still had another problem. Construction costs were approaching $2 million. By the time you factor in financing costs, carrying costs, commissions, closing costs, and everything else that comes with building a luxury spec home, the margins become razor thin... if they're there at all.
Now we had two problems: One, the market didn't support the projected resale... and two, the potential profit didn't justify the risk.
Why the Location Matters
I think this is where local knowledge becomes invaluable. People hear "Cape Coral waterfront" and automatically assume every waterfront property belongs in the same price category but it simply doesn't. Cape Harbour, Tarpon Estates, and The Hermitage have established luxury markets because they offer premier locations, direct boating access, luxury amenities, and years of high-end comparable sales. Buyers shopping in those neighborhoods expect to spend several million dollars. The subject property is almost 20 miles away. That's a completely different market with a completely different buyer. The location simply hasn't proven it can support a home of this size or this price point. Could that change someday? Maybe. But I don't lend based on "maybe." I lend based on today's market.
My Recommendation
I didn't tell my borrower to walk away, I told him to build a different product. Instead of building nearly 6,700 square feet, I recommended redesigning the home to somewhere around 2,800 to 3,200 square feet. Keep it high-end, build a 4-car garage (not 2!), add a dock and lift. Build something buyers in that market are already paying for.
Ironically... building a smaller house will probably make him more money. Lower construction costs, a much larger buyer pool, comparable sales that actually support the value, and a stronger exit strategy.
That's a deal I can finance all day long.
The Outcome
The best part of this story? My borrower listened. After we talked through everything, he decided not to move forward with the original plans. He told me his biggest regret wasn't changing the design... it was not calling me before spending tens of thousands of dollars on architectural plans and engineering. The truth is... I hear that more often than you would think. One conversation at the beginning can save hundreds of thousands of dollars later.
Would I Finance It?
As presented? No. With a redesigned home around 2,800-3,200sqft with 4 car garage and dock lift that will appraise at 1.7m-2.1m? Absolutely.
The redesigned project fits the market, supports the value, reduces the risk, and gives everyone a much stronger exit strategy.
Naomi's Take
One of the biggest mistakes I see investors make is building the house they want instead of the house the market actually wants. Real estate investing isn't about proving you can build the biggest house on the block. It's about building the house that sells.
Before I finance any deal, I ask myself one simple question... When construction is finished... who's writing the check? If I can't answer that confidently, I'm not comfortable moving forward.
So here's my advice... Call me before you spend the money. I'd much rather spend an hour reviewing your deal upfront than have a conversation six months later about why it isn't selling! Because at the end of the day...The market gets the final vote.
Until Next Time...
I hope you picked up something from this one! Whether you're building your first spec home or your fiftieth, every deal has a lesson if you're willing to look for it. If this article made you think about your next project a little differently, then it did exactly what I hoped it would. I'll be back soon with another real deal from my notebook.
Until then... Keep investing smart.
— Naomi
Frequently Asked Questions
Why would a lender decline a luxury spec home?
Because financing decisions aren't based solely on construction costs or appraised value. Lenders evaluate comparable sales, buyer demand, location, and the likelihood of a successful resale.
Does an appraisal guarantee a property will sell?
No. An appraisal estimates value, but buyers determine market value. A home can appraise for one amount and still struggle to sell if demand isn't there.
Why is location so important when financing a spec home?
Luxury buyers don't purchase based on square footage alone. Direct Gulf access, surrounding neighborhoods, comparable sales, amenities, and buyer demand all influence resale value.
Should I talk to a lender before designing a spec home?
Absolutely. A lender can evaluate market demand, comparable sales, projected resale value, and overall project feasibility before significant money is invested in plans and engineering.
