"Flipping" a New Build or a similar Strategy?

Question

Hi all! First time poster here, been lurking for a long time now.

Little background: I am 25 yrs old and currently live in Austin, TX. I work as a civil engineer for developers working on master plan communities, commercial buildings, and multifamily product throughout the Central Texas region. And as everyone on this site probably knows... the market is hotter than hot down here with both the influx of out of state buyers and local buyers!

I currently want to try to capitalize on the market boom here but have struggled to find a way to invest into the market, considering housing prices keep skyrocketing and I don't have enough capital to invest into an existing house. I realized that because I live here in town, I could potentially use new builds to my advantage as follows:

1. Contract with homebuilder in one of the many existing or new master plan communities within greater Austin Area

2. Lock in contract price (generally with a few grand down), and wait the 4-6 months for house construction

3. Close on the house by putting up minimal downpayment, minimal closing costs, etc.

4. "Flip" to buyer at price based on comparable comps in the proximity of the new build

To me this could be done in a way where it could potentially be a double close if I am efficient enough.

Is anyone familiar with this, and is there anything that I might not be thinking of that could be detrimental to this strategy?

Jake Helmburg · Answer

@Bob Okenwa Completely glazed over that aspect of the loan. That definitely throws a wrench in things. Thanks for the input

@Stephen Stokes Great points. I think renting out or holding out for more appreciation would be ok. But I definitely don't have enough capital to get around the loan fraud aspect.

@Jonathan Greene this sounds like what I was thinking of - I knew there was a better term for it! I'm starting to learn that cash is king

Bob Okenwa · Answer

@Jake Helmburg

If you're using a conventional loan, take note that there is language in the agreement that a person buying a primary residence single-family home with Fannie Mae must abide by the owner occupancy requirement and must agree to move into the home within 60 days of closing the loan, and to live there for at least a year. You must intend to use the home as your primary residence and double-closing and/or immediate flipping after closing of said home would be contrary to that.

Jonathan Greene · Answer

Pre-development buying has been around for years, but it's not done with low downpayment mortgages. It's done effectively with cash. If you buy in the earliest cycle of a development's build trajectory, you automatically force appreciation over time as the development homes become more value each time they release more for sale. In high-rises many people buy pre-construction and sell before it's built when there are none left and others still want in.

Stephen Stokes · Answer

@Jake Helmburg sounds like a plan set up for failure in more than one way. What are your backup exit strategies? Can you afford to rent it out at a loss? Can you afford to make payments for 6 months if you cannot find a buyer? As the other comment says, this plan is technically loan fraud as well so how will you avoid the legal implications?

"Flipping" a New Build or a similar Strategy?

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