On a waterfront spec home development, the profit is created the day you close on the dirt. Guice Mercer, who builds on Cedar Creek Lake southeast of Dallas, puts it plainly: the cost to build a house runs roughly the same per square foot whether it sits on 30 acres, a quarter acre, or a lot downtown. What changes is the resale price per square foot — and on water, that number is several times higher.
That means everything you control on the buy side matters more than anything you control on the build side. Water depth, lake levels, build lines, purchase price, and the calendar you break ground on will determine whether you clear $300,000 or eat carrying costs for eighteen months.
Below: how to vet a lakefront lot before you contract it, why carrying costs are the real killer, how to control land with $2,000 in earnest money, and what happened when a bank walked away from a $16 million construction loan after $8 million had already been spent.
Key takeaways
- Vertical construction costs roughly the same per square foot anywhere — Mercer builds at about $120–$150/sq ft cost — so on waterfront the entire margin is created at the land purchase.
- A ‘lakefront’ lot with no usable water depth is not a lakefront lot. Buyers want to swim and get boats in and out; without depth, your premium disappears.
- Carrying costs are the failure mode, not construction. Mercer’s prior company burned $63,000 a month when the market froze on rate moves and nearly went bankrupt.
- You can control a $200,000 parcel with roughly $2,000 in earnest money and a 30-day diligence window, then package the deal and bring it to an investor — leaving enough margin for the party carrying the risk.
- Assume your take-out lender can vanish. Banks lend from allocated buckets, and a slow project can lose its funding to deals that closed faster.
From the Real Estate Pros Show
This article draws on an interview with Guice Mercer of Me Too Designs on the Real Estate Pros Show, hosted by Freddie Steen.
Why the Margin on a Waterfront Spec Home Is Made at the Land Purchase
Framing, sheetrock, plumbing and finish-out do not care where the lot sits. Mercer builds at roughly $120 to $150 per square foot in cost, and that number holds whether the house goes up on 30 acres, a quarter acre, or a city lot. What moves is the exit: on water, the price per square foot he can get at resale is a multiple of what the same house brings in a conventional subdivision.
That asymmetry is the whole business. You pay more for waterfront dirt, but you do not pay proportionally more to build on it, so the spread widens as the land premium is captured rather than consumed.
A live example from his pipeline: a deal he expects to be all-in around $700,000, land and construction combined, that he intends to list in the $1.1 to $1.2 million range. On the high end that is roughly $500,000 of spread. On a soft exit near $1 million it is still about $300,000. The reason those numbers work is not the finish package — it is that he underwrote the land against known comps before he wrote the contract.
The operating rule that follows: know what has sold around the lot, know the current price per square foot for finished product in that specific pocket, and back into a maximum land price from there. If the dirt does not pencil, there is no design decision downstream that rescues it. As Mercer puts it, you have to win on buying the land — that’s where you start.
How to Vet a Waterfront Lot Before You Buy It
The single most common disqualifier is a lot marketed as lakefront that has no usable water depth. Mercer has watched buyers make this mistake repeatedly. Waterfront purchasers want to swim off their own shoreline and get a boat in and out of a private dock. Without depth, you have bought a view at a waterfront price and you will sell it at a view price.
Before you contract, work through the physical questions:
- Water depth at the shoreline, at current levels — not at full pool.
- Current and recent lake levels. Mercer’s own lake is down right now, which changes what a buyer sees on a showing.
- Boat access in and out of the cove or channel, and whether a private dock is permitted and practical.
- Build lines and setbacks, verified against the actual floor plan you intend to build.
- Who governs the water body, since reservoirs, corps-managed lakes and private lakes each carry different rules.
The advanced version of this is manufacturing your own frontage. On Cedar Creek — a reservoir where the managing authority encourages adding reserve to water levels — Mercer bought 44 acres of woods so thick he could not get a side-by-side through it, laid out a map, and dredged his own coves and channels. The result was the Emerald Bay development, where one completed home is listed at $2.4 million and another, off water with a strong water view, sits around $1.8 million.
That play is entirely jurisdiction-specific. It worked because the governing body’s rules allowed it. Do not assume dredging is available on your lake — confirm with the managing authority before the acreage is anything but a curiosity.
If I can build for 120 to 150 a square foot, my cost, and I can get an investor brought in to help fund the project — you make your money when you buy the land. So you buy the land right, and now you build.
— Guice Mercer, Me Too Designs
Carrying Costs Are the Real Risk, Not Construction
Construction cost is knowable. Carrying cost is what actually kills spec deals, because it compounds while you wait for a buyer who may not show up on your schedule.
Mercer’s prior company was spending $63,000 a month in carrying costs when interest rates moved and the market froze. Buyers stopped, inventory sat, and the monthly bleed nearly bankrupted the business. That experience is why he now prefers to fund projects all cash where possible — not out of debt aversion, but to remove interest and carry from the equation entirely so a slow quarter is an annoyance rather than an emergency.
The seasonal logic follows the same reasoning. Nobody wants to buy a lake house heading into winter, which makes winter the best time to buy the lot. Build through the cold months, be finished by spring, and sell across summer when the waterfront buyer is actually shopping. Aligning the build calendar to the selling season is the cheapest form of carry management available.
The counterexample: a friend of Mercer’s had a house under offer at $1.1 million. His partner insisted on $1.4 million and they turned it down. They eventually sold at $1.25 million — a higher number that produced the exact same profit, because they switched realtors and the commission doubled, and they carried the house for extra months in the meantime.
Time on market is a line item, not a waiting game. Before you reject an offer, price the additional months of carry, the possibility of a listing change, and the risk of a neighbor slashing prices out from under you. Mercer watched exactly that happen in a 32-home subdivision where one seller cut to break-even and the whole comp set reset.
Financing a Waterfront Spec Home You Can’t Fund Yourself
If you don’t have the cash, you can still control the deal. Mercer’s low-capital sequence on a $200,000 parcel:
- Put up earnest money. On a $200,000 piece, risk roughly $2,000.
- Buy a 30-day diligence window in the contract. You have now purchased 30 days to put a deal together.
- Verify the plan fits. Confirm your floor plan sits inside the build lines and setbacks on that specific lot.
- Package it on paper. Comps, build cost, timeline, projected exit.
- Take it to an investor — and leave real margin for them, because they are carrying the risk while you carry the paperwork.
His warning on the greed point is worth taking literally. If the investor makes money, you get the second deal and the third. Squeeze the first one and you have bought yourself a single transaction.
The cautionary side of financing is the one nobody plans for. Banks lend from allocated buckets, and those buckets get spent. Mercer’s company needed a $16 million construction loan on a project where they had already deployed $8 million of investor money and development time. When they went back for the money, the bank told them they had funded other deals and the project had taken too long. The commitment was gone.
They pivoted to parties already circling the project, who came in and completed it — at a cost of almost 40% of the company. The lesson is not that banks are unreliable; it’s that timeline drift converts a commitment into a maybe. Cultivate backup capital while things are going well, and treat every month of delay as an increase in financing risk, not just carry.
Running the Build: Subcontracting, Warranty and Investor Communication
Mercer does not carry in-house crews. He contracts a builder and pre-negotiates the price along with every fixture and finish-out selection before work starts, for two specific reasons.
First, post-sale liability. When Miss Susie has a cracked wall or a door that doesn’t hang plumb two years out, that sits with the builder who signed the warranty. Second, payroll. He isn’t bankrolling crews every week between draws or between deals.
What’s left is a role he can actually run alone: schedule enforcement and quality punch-out through one point of contact. Rather than chasing the painter, the plumber, the flooring installer and the sheetrock crew separately, he calls one person and says fix it. The warranty structure he cites is the typical 1-5-10 — one year on most items, five on majors, ten on the foundation — carried by the builder, not by him.
On the capital side, his rules are blunt. Target margins in the 20% to 30% range. Don’t overpromise; he would rather report beating expectations than explain a pie-in-the-sky number he missed. Open the books and let investors look. And communicate on a fixed cadence whether the news is good, bad or ugly, because in his experience deals go sour specifically when investors feel they’ve been left in the dark.
His risk threshold is a useful filter for sizing deals: he will not risk $100,000 to make $5,000. He will risk $100,000 to make $25,000 or $30,000. That percentage discipline is maintained by controlling cost, controlling the build, and controlling labor — not by hoping the exit comes in high.
Design and Buyer Expectations in the Luxury Waterfront Segment
The waterfront buyer is a different customer than the suburban retail buyer, and Mercer’s shorthand is the difference between someone shopping a Chevrolet Malibu and someone shopping a Mercedes-Benz. Same function, entirely different expectations about the experience.
Practically, that buyer is not evaluating your framing or your sheetrock. They see finish-out: light fixtures, granite and stonework, flooring, paint. Spend where the buyer looks.
Above all of it sits layout. Mercer is emphatic that the design and flow of the house matters more on lakefront than anywhere else, because the entire reason the buyer is paying the premium is the water — and a plan that fails to orient living space, sightlines and outdoor connection toward it wastes the asset you paid for.
One hard rule on timing: don’t try to sell before sheetrock. Most buyers cannot read a framed shell. Stand them in studs and they can’t tell which room is which or where the door goes, even with the floor plan in hand. Professionals in every other field included — Mercer has been surprised repeatedly at how few people can visualize a finished space from a frame. Wait until the walls are closed and the rooms read as rooms, then start showing.
Frequently asked questions
What should I check on a lakefront lot before I put it under contract?
Start with water depth at the shoreline at current levels, not full pool. If a buyer can’t swim off the lot or get a boat in and out, you are buying a view at a waterfront price. Then check current lake levels and recent history, dock permitting, boat access through the cove or channel, and the build lines and setbacks against the actual floor plan you plan to build.
Also identify who governs the water body. Reservoirs, corps-managed lakes and private lakes carry very different rules on shoreline work, docks and dredging, and those rules can either create or destroy the value of the frontage.
How much of a spec home’s profit comes from the land versus the build?
On waterfront, effectively all of it comes from the land decision. Vertical construction costs roughly the same per square foot regardless of location — Guice Mercer builds at about $120 to $150 per square foot in cost — while the resale price per square foot on water is a multiple of what the same house fetches off water.
That means the build is a cost you control and the land is where you create margin. On one of Mercer’s current deals, all-in around $700,000 against a $1.1 to $1.2 million list, the entire $300,000 to $500,000 spread traces back to buying the dirt at the right number.
What happens if my construction lender pulls out mid-project?
You raise expensive rescue capital or you lose the project. Banks lend out of allocated buckets, and if your project runs long, that allocation can go to deals that closed faster. Mercer’s company needed a $16 million construction loan after already spending $8 million of investor money — the bank told them they’d funded other deals and the money was gone.
They saved the project by going to parties already interested in it, but the rescue cost almost 40% of the company. The practical defense is to treat schedule slippage as financing risk and to build relationships with backup capital before you need it.
Can I control a piece of land and raise the capital afterward?
Yes, and this is Mercer’s recommended path for anyone without cash. On a $200,000 parcel, put up roughly $2,000 in earnest money and negotiate a 30-day diligence window. You have now bought 30 days to package a deal.
Use that window to confirm your floor plan fits inside the build lines, pull comps, build a cost and timeline projection, and take the whole package to an investor. Leave enough profit in the structure for the investor, because they are carrying the capital risk — and because a fair first deal is what earns you the next five.
Should I use my own crews or contract the whole build to one builder?
Contracting a builder makes sense for most small spec operators, for two reasons Mercer names directly. Post-sale liability — cracked walls, doors out of plumb — sits with the builder who carries the warranty, typically a 1-5-10 structure covering one year on most items, five on majors and ten on the foundation. And you avoid weekly payroll exposure between draws.
Pre-negotiate the price along with all fixtures and finish selections before work starts. Your job then becomes schedule enforcement and punch-out through a single point of contact instead of chasing individual trades. In-house crews start making sense once you have a project manager and consistent volume to keep them busy.
The bottom line
Before you look at another elevation or finish schedule, go price the land side of your next waterfront deal against actual finished comps in that specific pocket of shoreline — and calculate what one month of carry costs you if the exit slips. If those two numbers don’t leave you a 20% to 30% margin with room to spare, the deal isn’t there yet, no matter how good the lot looks from the water.
