“Only those who will risk going too far can possibly find out how far one can go.” – T.S. Eliot
“That house would fit into the closet of the house I’m building now.”
We were sitting in a car in a low-income neighborhood in Delray Beach, Florida, and Frank McKinney was pointing to a well-kept, 600-square-foot, one-bedroom house that was a rundown former crack house when he bought it in foreclosure 18 years ago. It was his third investment property. He fixed it up and sold it in a few months’ time — and made a quick $40,000 or so.
Twenty minutes later, we would tour another one of his real-estate deals, a brand-new home he was just finishing. This was entirely different — 12,000 square feet on 150 feet of blue Atlantic oceanfront. The property has a separate two-story guesthouse, a tennis court, a swimming pool, and finishes and amenities you would normally expect to find in a European estate. (And, yes, the master bedroom closet is about 600 square feet by itself — enough to fit one of Frank’s very earliest properties.)
The price tag on this place was $17 million, and it sold in only 62 days. What’s more, Frank has created and sold dozens of homes in this price range — give or take $10 million.
Frank spells out the guiding principles he’s used over the years in his best-selling book “Make It Big: 49 Secrets for Building a Life of Extreme Success.” But one idea in particular stood out during our conversation.
Frank is emphatic that to be successful in life — no matter what you choose to do — you have to “gently yet often exercise your risk threshold like a muscle. Eventually, it will become stronger and able to withstand greater pressure.”
As an 18-year-old kid and the black sheep of the family who graduated from high school by the skin of his teeth, Frank took his first major risk by leaving his home in Indiana and arriving in South Florida with nothing but $50 in his pocket. He began giving tennis lessons and formed “tennis clubs” at condominiums. By the age of 20, his tennis business was grossing more than $100,000 a year. But he didn’t stop taking on new, calculated risks.
He noticed that his wealthiest clients were all involved in real estate. So he got as much information and advice from them as he could and, at the age of 21, exercised his risk threshold again by buying his first foreclosure. It cost him $10,000. He fixed it up, sold it, and made a profit. Then he did the same thing again and again . . . eventually flipping dozens of homes in a single year.
Frank was working for himself and making very good money, but he still wanted something more. So six years after buying his first foreclosure, he exercised his risk threshold again and bought his first oceanfront property.
To keep his expenses low, he sold his own home and moved into a “zero-bedroom” apartment with his wife. He then took the equity from that sale and his savings and used them as the down payment. He paid $775,000 for “Driftwood Dunes” and put a few hundred thousand into renovating it. About two-thirds of the total project cost was financed by a bank loan. When he sold the property, he had nearly a $900,000 profit — about what he would normally have made on 20 of his smaller deals.
Since he was interviewed on the Oprah Winfrey show in 1998 as one of the country’s most innovative young entrepreneurs, he has become known as the leading developer of ultra-high-end homes in South Florida. Today, Frank will typically have $100 million worth of property on his books at any given time. What’s more, he designs and builds his properties on spec — which means he constructs them before he even has a buyer.
His more “affordable” custom, oceanfront homes start at about $7 million. And in 1999, Frank built what the Wall Street Journal called “the most expensive home built on spec in the history of the world.” He sold it for $28.5 million. He is now creating a home that will break even his own record, a home with over 32,000 square feet and a price tag of $40,000,000.
But don’t be fooled into thinking Frank McKinney is reckless. He’s far from it. He knows his niche in the real-estate market cold . . . he’s plugged into land deals before they hit the market . . . he knows when he has found an excellent value . . . he’s keenly aware of the costs of his projects… and he has never lost money on a real-estate deal in his life!
But he never would have enjoyed the success he has today if he didn’t make it a habit to gently yet often exercise his risk threshold. So if you get to feeling “stuck” from time to time — especially when it comes to your ambition to invest in real estate — it’s a principle you may want to incorporate into your own life.