A Secret to Real Estate Profits – Follow The Builder

As the real estate market cools, the profit potential of home ownership has cooled as well. Here’s a strategy called “follow the builder.”

It is relatively easy to make a profit when selling a home if the market is rising sharply like it has been for the last many years. It becomes more difficult when a hot market slows down and is very difficult to make a profit when prices are falling.

Is there a way to be relatively sure you’ll make a profit when you sell your home? There is under all but the most negative market conditions. In fact, I’ve seen young, energetic couples use this maneuver multiple times when they don’t even need to move.

Follow That Builder

In many areas, 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. This presents savvy buyers with a great important opportunity.

New Community

Builders will typically sell the first phase of a community for significantly less than later phases. On one hand, they need to get the cash flow moving and on the other, it is harder to sell at high prices because at first the community consists of dirt lots and construction equipment. Put these together and you have a great profit opportunity.

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 builders projects and find another location where you can do the same thing.

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.

Tax Consequences

I’ve seen this work well for a number of people but 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 so that you are prepared to deal with any tax consequences.