Follow the Builder Strategy

When the real estate market cools, the profit potential of homeownership cools as well. Here’s an old strategy called “follow the builder.” It is most typically used by mobile homeowners who don’t mind moving every 1-3 years and are looking to scale at a growth curve. But investors who have a modified rent-term plan they feel comfortable with, and a solid renter pool which will keep the home value in line with the neighborhood as more equity builds can use this as well. It works well if this type of mid-term game plan is up your alley as an investor.

Educate Yourself

It is relatively easy to make a profit when you sell your home if the market is rising sharply as it has been in many areas of the country and conversely, it becomes more difficult when a hot market slows down. As all investors know, it’s very difficult to make a profit on the sale of a home when prices are falling unless you can get really creative.

Is there a way to be relatively sure you’ll make a profit when you sell your home? Simply, yes, there is. Even under the most negative market conditions, if you take the time to educate yourself and put that education into play you can come out on top. In fact, I’ve seen eager and aggressive investors and homeowners use this maneuver multiple times, even when they don’t even need to move.

Follow The Builder

An important opportunity that can’t be overstated is to research your area’s builders. It’s essential when it comes to investing. In many areas of the country, there are builders who build hundreds of houses each year within a fifty-mile radius of each other. They build entire communities or are one of three to five builders who build entire communities around big employment centers.

Builders will typically sell first phases of communities for significantly less than later phases. Reasons for this are that they a) need to get the cash flow moving, and b) it is harder to sell at high prices because the community typically consists of dirt lots and construction equipment. Put these two things together and you get c) a great profit opportunity.

New Community

The idea is to get in on the first phase of the build-out. You will purchase the home at a discount, which gives you built-in equity. As the community is built up, you sell the home for a profit at a higher price. While you’re doing this, you keep tabs on the builder’s projects and find another location where you can do the same thing.

If you’re the homeowner, you’ll end up living in each house for a year or more and picking up nice profits along the way. The only real downside is you have to move repeatedly. If you are a savvy investor, you’ll be able to cover your mortgage rental expenses while building up equity, which you can convert with a much bigger sale down the line.

Tax Consequences

As with all strategies that put profits back into pockets after savvy business moves, you need to be aware that generating profit this way can have tax consequences. You need to discuss your plans (including projected timing and profit potential) with your tax professional to make sure that you capture all the deductions you can, file correctly, and get the maximum return for your investment strategy. For investors, you want to make sure that all accounting and payments are recorded correctly in line with your entity structure for your business.

If you hate moving around, this strategy might not be your go to, but if you don’t mind the packing, it can be a useful way to create a nice return. There’s never a perfect plan for anyone, so don’t be discouraged if it doesn’t work out, there is always another way to get into the real estate investing world.