An Old, Risky Strategy May Work Again?

[Kevin Dickson]

I see a type of opportunity that disappeared years ago. It became viewed as a shady strategy, but was that warranted? What do you investors think of this method in today's market in Denver?

I remember in, say, 2003, you could lock in a pre-construction deal in a new Phoenix subdivision, and make quite a bit of money by selling the house soon after it was completed. Sometimes you could do this with very little earnest money. If the housing market was increasing 20% per year, and it took 9 months to build the house, then you could make 15% by only putting down 1% earnest money. It was also usually very easy to cancel these contracts with no penalty if you got cold feet.

I knew people in Denver who did it in the mid 90s in some parts of Highlands Ranch and other exurbs.

If the particular subdivision was near build-out, then a good ROI was almost guaranteed.

A relatively desirable new development in Denver is promoting similar deals right now, and I think this strategy could enjoy a comeback. Buyers LOVE new houses that haven't been lived in before, and some of them don't have the time to wait for their house to be built. This development is quite close to downtown. I'm not connected to these guys in any way, but I'm developing new houses in old neighborhoods across town, so I'm watching this closely.

I think an investor doing this is adding value:

1. He's putting up the earnest money for the 9 months.

2. The builder has a contract on the property, so his confidence level is high that it will sell upon completion.

3. The builder's bank has a warm fuzzy feeling also.

Here's the blurb I found in my inbox:

"These new lots are slightly larger, on street corners. Sales agents at Brookfield Residential have fielded requests for these kinds of lots all year, and now they are available for reservation. Home buyers can visit the sales office at 1730 W. 67th Ave. in Denver, choose the lot that suits them best, then choose one of six models to build on that lot.

“We are delighted to make these lots available to the people who have envisioned their dream homes in a particular setting,” said Perry Cadman, general manager of Brookfield Residential in Colorado. “And we are happy to be the ones to construct those dream homes for them.”

For more information about home-buying opportunities at Midtown, go to www.BrookfieldResidentialCo.com "

Here's the map to this classic infill location: http://www.brookfieldresidentialco.com/homes/midtown