Cash vs. Leverage in Home Building (Simple #'s)

[Devin James]

You’ve got $500K in cash and want to build and sell Single-Family Homes..

You have two paths forward

1️⃣ - Leverage: Build and Sell 5 Homes

- $80K Per Vacant Lot ($400K Total)

- $250K Cost Per Home ($1.25M Total)

- Construction loans at 80% LTC

- $500K Home Value ($2.5M Total)

💰 Profit: $550K (After Closing Costs, Financing, & Contingency)

2️⃣ - All Cash: Build and Sell 1 Home

- Buy 1 lot and build 1 home

- Same costs, no loan, no interest

- Home sells for $500K

💰 Gross Profit: $130K (After Closing Costs & Contingency)

Same $500K. Same market. Same build.

5X the return by using leverage.

Smart leverage puts capital to work efficiently.

Do you sleep well at night using leverage?

[Justin Manley]

Some things to consider:

1) Its more than 5 times the work. Never consider this anything but a job. You could be doing other things, so lost opportunity cost. Are you qualified to oversee the builders?

2) What if your numbers change for the worse? Lets say you lose money per sale? Disaster
For example, Trump places a 50% tariff on steel and lumber and/or deports all the illegals, a real possibility.

3) What if your builders let you down. Can you sit on those properties for two years?

I have known several investors that took the grow like a virus approach. All of them did well for a period.

None of them are in the business now. A significant event could hurt you. Can you afford to take that risk?

If you can shrug off a 2 sigma event go for it, imho.

If this is your first transaction of this exact nature, maybe a test run of one house would be wise.