Let me explain more: Margin and time advantage

Building and selling homes or condos is definitely a high margin quick profit and low risk business when the time is good. Why so? A builder like Toll brother can simultaneously build 400 communities nationwide. Each community has about 300 houses on average. Each community take about 2 - 3 years to finish. Once the community is finished and all houses are sold, Toll brother comes clean with nothing but huge cash. One thing you need to be aware of that builders not only make money from margin profit, i.e., the profit from substracting sales price with cost. They also make money from these 2 -3 years of price appreciation resulting from the whole market's rise. In a sense, they not only earn margin profit, but also earn flipping profit. So, it's a profit on profit situation. They don't flip, but they get the same effect of flipping like investors. Because their original cost is fixed, such as land cost and construction loan cost. Any yearly appreciation becomes their pure profit.

If you are a seasoned builder, you understand the higher profit potential from building than from acting as a landlord. As a landlord, the only gain would be from cashflow profit (which is almost non-existent), and from future appreciation (which will take a long hold and suffer alot of years without income). Landlord's profit margin is a lot less than that from a builder. Big time investors eventually go become a builder. After they become a builder, they no longer want to waste their limited resources on lower profit business of a landlord.

To us average people, we don't have clout to be a builder. The second best choice would be a landlord business, it still beats out buying mutual funds.

所有跟帖： 

• One way builders further reduce risks: Options to buy land -miat42- ♂ (1663 bytes) () 06/14/2007 postreply 16:25:39

• Make a lot of sense, you are the best! -JR98- ♂ (0 bytes) () 06/14/2007 postreply 16:47:07