Am I crazy? Weird appreciation opportunity hidden in plain sight

[Roy Peer]

I recently visited a new development and spoke with a sales agent. They said we could lock in the price of a soon-to-be-built lot (9 months, SFH) for 3% (house and land included). This got me thinking. The area (in Florida) in which they're building has appreciated 15%+ YOY the last 3-5 years.

So, why wouldn't someone do this:

Put down deposits on multiple future homes at 3%. (Yes, you're locking that money in, but you have no holding costs, mortgages, upkeep).

Lock in the price of the lot at current pricing. Let the builder know you're planning on purchasing using. 10% down.

Wait 9 months until it's built.

When the home is built, put down 10%, then immediately refinance at current appraisal (hopefully 20% LTV) pulling out 10% to buy more and now owning a rental?

Am I crazy? What am I missing?

[Nathan Gesner]

It's a gamble. In 2005, I saw people doing this in Vegas. There were waiting lists of 100+ people wanting to buy new homes in new subdivisions. They would put money down and then wait for a $450,000 home. By the time the home was built, it was worth $525,000. So one of the people I worked with decided to put money down and get on the list, then when he got close to the top of the list, he sold his position to someone else and made a $30,000 profit.

A couple problems: 

1. He still needed a home! He had to put additional money down to sit on another waiting list. That waiting list was for an even newer, more expensive subdivision, so he probably spent whatever he "earned" from selling his position on the first list.

2. He tried it a second time and lost everything when the market crashed.

The third problem? The house he eventually bought was $565,000 brand new. It was worth less than half that a year after he moved in and he probably didn't fully recover the value until ten years later.

You can make a lot of money on a market that appreciates fast. You can also lose a lot. It's a gamble, not a sound investing strategy.