Group investments building homes isn’t really investing. Confused? Much like flipping homes, the building of homes without a buyer in hand is pure, unadulterated speculation. Don’t let anyone tell you it’s not.

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Transcript:   Today we’re going to talk about group investment. We’ll do one at a time. Back in the day when I was in business with Dad still, late 70s and 80s, we did what was known then as syndications, limited partnerships. We bought real estate. That’s what we did. Sometimes we fixed them up. Sometimes we bought and held, and they turned out fine. What we’re going to be doing now and we’re tooling up right now, frankly one of them I’ve been a pioneer on myself with my own cash. That’s the one we’ll talk about today. We’re investing in the building of relatively luxury level homes in the southwest area of Austin, Texas. Now, when I say luxury, most of the homes in Austin, let’s call it the median, are selling $250,000 to $300,000. The homes that this guy’s building for us are $500,000 to $1 million, so you have a different clientele. What’s good about building luxury homes and they’re speculative, they’re completely speculative. I’ll get back to that part a little bit later. When interest rates go up a little bit, luxury home buyers don’t panic. They either just pay the extra $500 a month or $800, whatever it is, or they just add another 100 grand to the down payment. They don’t think about it that much because they’re, generally speaking, high wage earners. What this is, and let’s go back to the speculative factor here, this is highly speculative, highly speculative in the sense the only way I could think would be riskier would be for you to fly to Vegas, go to the roulette table, put your 50 grand on black and red and spin her. I’m joking a little bit when you’re building spec homes, don’t let anybody ever tell you it’s not risky. It’s way high on the scale of risk and what a normal investor is used to or even comfortable with. You should use money that is over and above your investment. It should be a different basket. You should invest it thinking if I lose this, I’m okay. I won’t cry for more than a few minutes. Now, a couple of my investor buddies and I put our shekels together last year and we put over $600,000 of our own money in with this start-up company. Now, they build five homes, one of them’s about to close escrow already but the bottom line is our 600-and-some-thousand is, that’s all coming back and the profits are going to be somewhere in the vicinity of $200,000 or $300,000 so we’re happy. Is it always going to be $200,000 or $300,000? No. Sometimes it’s going to be $400,000. Sometimes it’s going to be $100,000. The key word is profit. The way it’s going to work is this. We’re going to put groups together and your job is to invest, have all the documents in your den in the desk and forget about it and just look for our monthly updates. There’s going to be a preferred return. It’ll be different for each group. It’s probably going to between 8% and 12%. That means that before my company gets any part of any profit, you must get your initial capital investment back to you plus the preferred return. Then the profits are divvied up. What will typically happen is half will go to the group, half will go to my company. Let’s take an example. Let’s say we capitalized at $1 million and we bought various pieces of dirt. Let’s say that we’re not going to build houses. We’re just going to develop the dirt. Now that’s pretty cool because we don’t have to go through the risk of building.