The Pre-Construction Flip is Born and I start doubling money!

In my last post (How I Turned $7K into $187K in 18 months), I described in detail how I entered into a purchase agreement to secure a $418,500 house that was in pre-construction with a $3,000 EMD (1 to 139.5 leverage) in March 2003 that took 18 months to build and was worth $600,000 when I closed the escrow in September 2004 with only $7,000 cash out of pocket. This resulted in having over $180,000 in equity from a $7,000 investment (cash on cash ROI of 2,593% or 1,729% annualized).  I wanted to see if I could do it again, so I told two close friends how I could double their money in 6 months.  All they needed was $10K (for closing costs) and a FICO score of 640.

I managed the deal for both of them.  I had them each enter into purchase agreements with a home builder for a $300K house in West Lancaster, CA.  I coordinated the 100% financing with a mortgage broker (100% financing: a set of 80/20 loans where the first mortgage was a 30-year interest-only loan for 80% of the purchase price (80% LTV) and the second mortgage was a 30-year interest loan for the remaining 20% (20% LTV).).  They both in the middle phase of the tract and they both bought the same model.

They both closed at the same time (3 months after signing the purchase agreement).  My first friend Richard was very conservative.  The day after the close, he put a For Sale By Owner sign in the front yard.  He offered his house at the current rate the home builder was selling their current houses.  He was in escrow in a week and closed within 30 days.  He turned his $10K investment into $25K in 4 months for an ROI of $15K (cash on cash ROI of 150%, annualized is $450%).

My other friend had a higher risk tolerance.  He priced his house higher than the current market, so it took him 6 weeks to get his house in escrow.  As such, he had to make a payment of $2K.  He finally get it into escrow and the sale closed a couple of weeks later.  So my friend Eric invested $12K and turned it into $50K in 6 months for an ROI of $38K (cash on cash ROI of 317%, annualized is 635%).

Now that I had proof that this worked, my family (me, my father and my brother) put 3 houses under contract ($900K worth of houses under contract with only $9K EMD).  I then did the same thing in Frisco, TX with 6 houses that cost $150K each and only required $1,500 EMD per house ( another $900K worth of houses under contract with only $9K EMD).  So I was able to control $1.8 million worth of houses (9 homes) with only $18K.  Over the next 3 months while they constructed the homes, the appreciation on the houses was $250K.  All was well until I took my eye off the ball.

Next time I will show you how I went from a net worth of over $500K with $200K in cash, to only have $100 to my name and about to be homeless.

Until then, God Bless You!