Real Estate Investment Property Plan

[Bret Benton]

I have been planning for sometime now on the best way to invest in real estate while getting the most return possible.  I am in the construction industry and have my contractors license so would like to use my knowledge and resources to get the most out of my investments. I am in a very fortunate situation where I have the possibility of a $50,000 initial investment from a family member that is looking for minimal return so here is my 5 year plan...

Year 1

Purchase lot 1 for $50,000 (initial investment) 

Build 2000 SF spec house 1 at $75/SF = $150,000.00

Sale 2000 SF spec house 1 at $130/SF = $260,000.00

Year 1 cashflow = $110,000.00

Purchase Lot 2 for rental house 1 $30,000.00 

Purchase Lot 3 for spec house 2 $50,000.00 

$30,000.00 for insurance, realtor fees, taxes, etc. 

Year 2 

Build rental house 1 on lot 2 1600 SF at $75/SF

Build spec house 2 on lot 3 at $75/SF = $150,000.00  

Sale spec house 2 at $130/SF = $260,000.00

Year 2 Cashflow = $110,000.00

Purchase lot 4 for rental house 2 $30,000.00

Purchase lot 5 for spec house 3 $50,000.00 

$30,000.00 for insurance, realtor fees, traxes, etc.  

Repeat this process over and over until I can acquire 10 or so rental properties. As you can see this is all from an initial investment of $50,000.00 and using the spec houses to obtain the cash needed to build rentals. My intentions are to do this through an LLC. My questions are..

1. Financing for new construction on spec houses.  What should I look into? 

2. Taxes - DO NOT want to pay capital gains on spec house sales.  Can I 1031 this into the lots?  It's my understanding I can not.  If I do through a legit business won't the purchase of the lots be tax write off?  If i could figure out the tax thing I feel like i could acquire 2 rentals a year instead of 1.  Initially planning for the worse and hoping for the best, thus the $30k annual set aside for taxes, insurance, realtor fees, etc. 

Any feedback would greatly be appreciated.