Let me share the story of how I acquired 27 home sites in Belize. It was a true no-money-down investment. You can use the same strategy if it makes sense to you. Rely on leverage to begin your career as a real estate investor.
Let me share the story of how I acquired 27 home sites in Belize. It was a true no-money-down investment. You can use the same strategy if it makes sense to you. Rely on leverage to begin your career as a real estate investor.

In some cases, it makes sense to use leverage. Use it to acquire properties that throw off cash flow each month. In other cases, use leverage to acquire assets that will grow in value.

In Belize, I am using the second strategy.

My wife and I began acquiring rental properties with our first investment in the San Francisco Bay area, back in 2012. That investment worked out well, helping us to build equity and credit. By using that investment as a starting point, we leveraged our way into several other projects. The following link shows every real estate deal I made since I started investing:

By early 2018, I could see that the real estate market in California had changed. Properties appreciated in value. The rapid appreciation was good for my existing properties. Cumulatively, they were worth hundreds of thousands of dollars more than when I purchased them. But the higher valuations made it more difficult to invest in new properties.

That’s part of investing. We always have to assess the market and make decisions on the strategy we’re going to pursue that will take us to the next level. From my perspective, it made sense to hold on to the real estate I owned in California, but to look elsewhere for new acquisitions.

 

Flying to Belize:

Since I had a friendly relationship with developers of The Reserve, a 14,000-acre master-planned community on the Caribbean, I booked a flight to travel to Belize in February 2018.

I flew from Orange County to Houston. Then I changed planes for the connecting flight to Belize City. In Belize City I boarded a small puddle-jumper flight to an air strip in the Stann Creek District, of Southern Belize. Traveling to Belize was a lot easier than I anticipated.

Once I got to The Reserve, I learned a lot more about the development. The huge property spanned more than 20 miles from end to end, making it comparable in size to Manhattan. I was astonished at the lush, natural beauty but also to the business model of the development. Of the 14,000 acres, the developer created a master-planned community with 1,500+ home sites that were situated in 12 different subdivisions. More than 10,000 acres of the property would remain undeveloped, a natural habitat reserved for the animals and plant life. With so much green space, The Reserve reminded me of scenes from the Jurassic Park films.

The developer owned the property without any encumbrances, giving me a lot of confidence in the project. I liked the project because without any debt, it would never be vulnerable to changing economic conditions in the USA, and lenders could never threaten the viability of its completion.

Further, since the developer didn’t have any debt, he could attract buyers with in-house financing for anyone who could meet his terms. The developer accepted down payments of about 20 percent on the property, and he would finance the remainder over a term loan. Investors had purchased more than 1,000 home sites on the property. Owners made monthly payments to the developer for their purchases and the developer relied upon those monthly receivables to carry out development costs that included:

  • Installing more than 40 miles of roads
  • Installing power lines, water lines, septic systems, and telecom systems
  • Building and operating all amenities, including:
    • Private beach club
    • A 250-slip deep-water marina
    • Restaurants and bars
    • Organic gardens
    • Equestrian centers
    • Parks

Although the developer had already sold 1,000 home sites, there were a total of only about 70 homes built on the property when I visited. I saw a huge need for more homes and I began to calculate how an investment would work out:

Step 1:

  • I could use purchase a ready-to-build home site from the developer for about $200,000.

Step 2:

  • I estimated that I could build a three-bedroom, three-bathroom home on the property for about $150 a square foot. With landscaping and a pool, I expected the price to build would be less than $350,000-all in.

Step 3:

  • I could retain local help to manage the property for me as a short-term rental.

Step 4:

  • I could use the Airbnb service to rent the property out to people who wanted to experience paradise in a non-touristy environment. I anticipated that the property would generate about $250 per night in income. Conservatively, I estimated that the property would generate $60,000 per year in income, which would more than service the debt I used to acquire the asset.

Step 5:

  • Income from the property would pay it off within in ten years, providing my wife and me with a fully-funded income stream for our retirement.

 

Equity Investments:

When I discussed this idea with the developer, he confirmed that I could definitely pursue such a plan. Then we spoke a bit more about my motivation and availability. I told him my story and explained that I wanted to continue investing for my retirement. Simultaneously, I wanted a project I could work through for the next 10 years of my career. If I could build one house successfully, I felt confident that I could raise more capital to replicate the process.

After listening to my strategy, the developer made a different suggestion. Instead of investing in Belize, I should consider investing in a new development project and building equity as the entire project went from conception to implementation.

Investing at the start of a project opened considerably more opportunities for upside. In exchange for an investment of at least $500,000, the developer offered a 5x return. After five years, the developer projected that he would return the original investment, with continuing distributions from proceeds over the next 20 years. Cumulatively, a $500,000 investment would generate more than $2.5 million.

I booked a trip with the developer to Costa Rica so that I could visit a new project. The project I toured was 1,600 acres on the ocean, with three miles of coast line. The developer expected to create a new master-planned community, with more than 1,000 home sites. Sales from those home sites would generate cash flow that the developer would use to build out the community and repay investors.

I liked the equity model very much.

I then made a series of transactions to raise capital so that I could participate as an equity investor with the developer. Specifically:

  • I obtained a new mortgage against an income property that I owned: $580,000
  • I sold a rental property for $550,000.
  • I raised $500,000 in investment capital from others.

After I paid down mortgage debt from the property I sold and gathered all proceeds, I had $1.4 million available to invest in the equity project.

In addition to the funds that I raised for my own account, I raised an additional pool of investment capital from other investors, including:

1. $100,000 from private investor 1.
2. $100,000 from private investor 2.
3. $750,000 from private investor 3.
4. $600,000 from private investor 4.
5. $400,000 from private investor group 5.

By bringing a total $3,350,000 in new capital to the developer, I was in a strong negotiating position. Of those funds, my investment of $1.4 million represented the largest individual stake. Over time, that investment would yield a total return in excess of $7 million.

 

Leveraging my Equity:

According to the projections, the $1.4 million in equity that I put up meant that the developer anticipated I would receive a total return of more than $7.4 million over time. I could pledge that equity to accelerate my career by making an investment in pre-construction lots in Belize.

Relying upon those future proceeds, I pledged my equity to acquire 27 home sites in an undeveloped section of the Laguna Palms subdivision at The Reserve development in Belize. According to the master plan, by 2023, the developer will finish that project, installing a new man-made lake and a new beach club in Laguna Palms. Once those projects are complete, the developer expects to sell lots in Laguna Palms for $250,000 each.

I purchased my lots for $100,000 each, for a total of $2.7 million. Further, my contract with the developer stipulates that I have the right to assign my interest in the lots that I own in Laguna Palms to others-and the developer will extend the same financing terms that I have to buyers that I find.

In other words, since I have pledged my equity from a larger investment, the developer is guaranteed to receive payment over time. This is the way that I use leverage to acquire assets that I expect to appreciate in value.

My goal with this project is to sell 25 lots for $135,000 each. If I succeed, the economics of that transaction would work out as follows:

  • Total revenues: $3,375,000
  • Cost of acquisition: $2,700,000
  • Gross profit: $675,000
  • Marketing costs: $270,000
  • Rough profit over life of financing terms: $405,000

The project would also result in my owning two additional lots. On each of those lots, I will build a house. Those two houses will generate income from short-term rentals.

That’s the way that I use leverage to acquire assets that I expect to appreciate in value.