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He’s buying the completed home then selling, or assigning the contract?
As to the latter, most builders contracts these days prevent you from doing so for this reason.
Otherwise, only downside risk protection is same as any other property: hope you picked a location that will remain hot
Both. The market here is way too hot and builders don’t give a fuck.
There is obviously a higher risk than buying a property. If you buy a property speculatively with a loan and there is a small crash, you just go CF negative for a few years. It’s not great but handleable when most of your portfolio is in high cashflow real estate. If the price of a $800K property goes to $600K, you have to come up with 200 grand.
Mentor
I do this all the time in Texas. Before Most builders only had you put a few thousand. Some others maybe 5% Down. I have seen up to 10%.
Some don’t let investors. Others do. Some don’t ask and you don’t tell. I’ve kept most for at least a year or two after to rise continued appreciation. I have seen builders have people sign a contract that they don’t make it an investor property given all the market madness.
First year is under warranty. Ie I have no maintenance. I’ve been able to be cash flow positive. Biggest benefit as you mention is massive appreciation.
Sold one recently for 230k profit. House was 260k. That was 4 years of holding.
I have a whole slew of other properties in the pipeline with this same method. I think each one has gained 1-200k in paper appreciation.
One trick is to find a local builder- not small but not National- that will sell to you.
I’ve also moved into these types of homes and stayed for a year or so. Then rent it back out. These were a bit nicer though.
I’m in a similar market (Southern Ontario), boatload of immigrants coming every year keep driving housing prices sky high
Mentor
2-3x as in he’s making 2-3x the amount put up for a bridge loan while the home is under construction? Or is he getting a ARM and holding for 1-2 years? It works until it doesn’t (like 08-09)