What is Preconstruction Real Estate Investing?

Investing in pre-construction real estate is one of the most profitable investing opportunities available in the market today. Even though it’s a fairly old strategy, very few investors have a good understanding of it. Preconstruction real estate investing can be best explained with an example:

A developer is planning to build a 100 unit condominium development in a very popular location. The developer has already worked out the numbers and thinks that the project will make a handsome profit. Since he doesn’t have the required amount of capital to complete a project of such magnitude, he approaches banks to request financing.

But before banks lend out millions of dollars to the developer, they want to know that the project has the potential to sell after completion. Since there is no way to know the future and banks like to reduce risk as much as possible, they require the developer to pre-sell a certain number of the units (usually 25%-50%) before they will lend money. In this example a bank agrees to finance the developer if 40% of the units are sold before construction begins.

There are very few home buyers who are going to commit to buying something without actually seeing it with their naked eyes. So the developer has no choice but to approach real estate investors who understand the risk and reward of such ventures. In order to reward these investors for their risk, the developer gives them a 10% discount off the appraised value (after construction value) of the condos if they sign a purchase agreement (contract).

This creates a win-win situation where the developer is able to secure financing and the investors are able to get built-in equity by getting the property below appraised value. The investors who buy these condos before the construction is completed are called pre-construction investors, and this investment strategy is called preconstruction investing.

In this example it was a development from the ground up, but the term “pre-construction investing” can be used for any purchase made before the actual completion of a real estate development. The development may be from ground up or just a renovation project i.e. A condo conversion project where preconstruction investors buy before the renovation is complete is also an example of pre construction investing.

In general, pre construction pricing is 5% - 15% lower than the market value of the finished property. Sometimes the developer may offer other financial incentives instead of a price discount. Some examples include cash back after closing, closing cost credit, free upgrades, rental guarantee or lease back, paid property taxes, waive assessments waived, management fees waived, etc. However, in most cases the developer will offer a combination of a price discount and other financial incentives in order make the deal sweeter for preconstruction investors.

After the construction or renovation is complete, pre construction investors’ have two options to exit. Either they sell their property and make a quick profit, or they can hold the property as a long term investment and build equity. Sometimes investors can also profit by assigning the contract to a fellow investor for a small profit even before assuming title to the property.

Below is summary of the process of preconstruction investing:

The pre construction investor buys a house, condo or townhouse from a reputed developer in the preconstruction phase at a price discount and/or other financial incentives. The pre-construction investor waits for the construction or renovations to be completed. After completion of the construction or renovation, the preconstruction investor sells the property immediately for a profit. Or the pre construction investor holds the property to build additional equity due to appreciation and by paying off principal using the rental income. In some cases, exit by assignments is also possible.

For a current list of preconstruction opportunities Please visit http://www.PreConstructionFind.com.

About the Author

Working as freelance content writer.

Keeping Real Estate Investing Simple

In real estate investment, do you know what the hardest deal to close out is?

The first one!

The challenge is such that most people eventually quit even before ever getting their first deal completed; in fact some would be real estate investors quit even before getting started!

With the glut in available information and the numerous real estate investment options available, getting started is as challenging as getting your very first deal!

Consider some of options that you can choose from if you want to invest in real estate.

Buy and Hold

Commercial space rental

Subject to the existing financing

Fixer Uppers

Flips

Foreclosures or Pre-foreclosures

Lease-Purchase or Lease

No Money Down

Single-family homes, condos, mobile homes or apartment buildings

Confusion arises when you are undecided which of the profitable and popular options as enumerated above you want to engage in.

Unless you are a very liquid and well-financed organization, you can engage in all of them. However, for ordinary investors, engaging in one or two investment options at the most is the preferred method.

If you are lucky enough to make up your mind in which real estate option you want to engage in, the next step is then to systematically search for and close your very first deal.

Again, there are several options open to you on how to close your deal and get to the bank in order to deposit the check of your deal.

The best way to invest in real estate is to find the option you are comfortable with and specialize in it! Learn everything all you can about your particular investment option.

If you have to, take informal courses related to it so that you will become knowledgeable and on the road to becoming a specialist!

Once you have mastered your specialization, take the necessary action in order to get and close your very first deal.

Then and only then, and only if you are serious in making money in real estate can you diversify and learn another real estate investment method.

In learning the ropes of real estate investing, either you choose to undergo a training course or do it on your own.

If you choose to take formal lessons, do not confuse the price of the program with the value of the program.

The cost of a training program is not related to the value it has and the methodologies and techniques you will learn.

About the Author:

Download A Free Ebook That Shows You How You Can Make $50,000 Per Deal From Real Estate Preconstruction: Free Preconstruction Ebook

Keeping Real Estate Investing Simple

In real estate investment, do you know what the hardest deal to close out is?

The first one!

The challenge is such that most people eventually quit even before ever getting their first deal completed; in fact some would be real estate investors quit even before getting started!

With the glut in available information and the numerous real estate investment options available, getting started is as challenging as getting your very first deal!

Consider some of options that you can choose from if you want to invest in real estate.

Buy and Hold

Commercial space rental

Subject to the existing financing

Fixer Uppers

Flips

Foreclosures or Pre-foreclosures

Lease-Purchase or Lease

No Money Down

Single-family homes, condos, mobile homes or apartment buildings

Confusion arises when you are undecided which of the profitable and popular options as enumerated above you want to engage in.

Unless you are a very liquid and well-financed organization, you can engage in all of them. However, for ordinary investors, engaging in one or two investment options at the most is the preferred method.

If you are lucky enough to make up your mind in which real estate option you want to engage in, the next step is then to systematically search for and close your very first deal.

Again, there are several options open to you on how to close your deal and get to the bank in order to deposit the check of your deal.

The best way to invest in real estate is to find the option you are comfortable with and specialize in it! Learn everything all you can about your particular investment option.

If you have to, take informal courses related to it so that you will become knowledgeable and on the road to becoming a specialist!

Once you have mastered your specialization, take the necessary action in order to get and close your very first deal.

Then and only then, and only if you are serious in making money in real estate can you diversify and learn another real estate investment method.

In learning the ropes of real estate investing, either you choose to undergo a training course or do it on your own.

If you choose to take formal lessons, do not confuse the price of the program with the value of the program.

The cost of a training program is not related to the value it has and the methodologies and techniques you will learn.

About the Author:

Download A Free Ebook That Shows You How You Can Make $50,000 Per Deal From Real Estate Preconstruction: Free Preconstruction Ebook

Keeping Real Estate Investing Simple

In real estate investment, do you know what the hardest deal to close out is?

The first one!

The challenge is such that most people eventually quit even before ever getting their first deal completed; in fact some would be real estate investors quit even before getting started!

With the glut in available information and the numerous real estate investment options available, getting started is as challenging as getting your very first deal!

Consider some of options that you can choose from if you want to invest in real estate.

Buy and Hold

Commercial space rental

Subject to the existing financing

Fixer Uppers

Flips

Foreclosures or Pre-foreclosures

Lease-Purchase or Lease

No Money Down

Single-family homes, condos, mobile homes or apartment buildings

Confusion arises when you are undecided which of the profitable and popular options as enumerated above you want to engage in.

Unless you are a very liquid and well-financed organization, you can engage in all of them. However, for ordinary investors, engaging in one or two investment options at the most is the preferred method.

If you are lucky enough to make up your mind in which real estate option you want to engage in, the next step is then to systematically search for and close your very first deal.

Again, there are several options open to you on how to close your deal and get to the bank in order to deposit the check of your deal.

The best way to invest in real estate is to find the option you are comfortable with and specialize in it! Learn everything all you can about your particular investment option.

If you have to, take informal courses related to it so that you will become knowledgeable and on the road to becoming a specialist!

Once you have mastered your specialization, take the necessary action in order to get and close your very first deal.

Then and only then, and only if you are serious in making money in real estate can you diversify and learn another real estate investment method.

In learning the ropes of real estate investing, either you choose to undergo a training course or do it on your own.

If you choose to take formal lessons, do not confuse the price of the program with the value of the program.

The cost of a training program is not related to the value it has and the methodologies and techniques you will learn.

About the Author:

Download A Free Ebook That Shows You How You Can Make $50,000 Per Deal From Real Estate Preconstruction: Free Preconstruction Ebook

What is Preconstruction Real Estate Investing?

Investing in pre-construction real estate is one of the most profitable investing opportunities available in the market today. Even though it’s a fairly old strategy, very few investors have a good understanding of it. Preconstruction real estate investing can be best explained with an example:

A developer is planning to build a 100 unit condominium development in a very popular location. The developer has already worked out the numbers and thinks that the project will make a handsome profit. Since he doesn’t have the required amount of capital to complete a project of such magnitude, he approaches banks to request financing.

But before banks lend out millions of dollars to the developer, they want to know that the project has the potential to sell after completion. Since there is no way to know the future and banks like to reduce risk as much as possible, they require the developer to pre-sell a certain number of the units (usually 25%-50%) before they will lend money. In this example a bank agrees to finance the developer if 40% of the units are sold before construction begins.

There are very few home buyers who are going to commit to buying something without actually seeing it with their naked eyes. So the developer has no choice but to approach real estate investors who understand the risk and reward of such ventures. In order to reward these investors for their risk, the developer gives them a 10% discount off the appraised value (after construction value) of the condos if they sign a purchase agreement (contract).

This creates a win-win situation where the developer is able to secure financing and the investors are able to get built-in equity by getting the property below appraised value. The investors who buy these condos before the construction is completed are called pre-construction investors, and this investment strategy is called preconstruction investing.

In this example it was a development from the ground up, but the term “pre-construction investing” can be used for any purchase made before the actual completion of a real estate development. The development may be from ground up or just a renovation project i.e. A condo conversion project where preconstruction investors buy before the renovation is complete is also an example of pre construction investing.

In general, pre construction pricing is 5% - 15% lower than the market value of the finished property. Sometimes the developer may offer other financial incentives instead of a price discount. Some examples include cash back after closing, closing cost credit, free upgrades, rental guarantee or lease back, paid property taxes, waive assessments waived, management fees waived, etc. However, in most cases the developer will offer a combination of a price discount and other financial incentives in order make the deal sweeter for preconstruction investors.

After the construction or renovation is complete, pre construction investors’ have two options to exit. Either they sell their property and make a quick profit, or they can hold the property as a long term investment and build equity. Sometimes investors can also profit by assigning the contract to a fellow investor for a small profit even before assuming title to the property.

Below is summary of the process of preconstruction investing:

The pre construction investor buys a house, condo or townhouse from a reputed developer in the preconstruction phase at a price discount and/or other financial incentives. The pre-construction investor waits for the construction or renovations to be completed. After completion of the construction or renovation, the preconstruction investor sells the property immediately for a profit. Or the pre construction investor holds the property to build additional equity due to appreciation and by paying off principal using the rental income. In some cases, exit by assignments is also possible.

For a current list of preconstruction opportunities Please visit http://www.PreConstructionFind.com.

About the Author

Working as freelance content writer.

Real Life Real Estate Investing

I bought my first apartment 10 years ago, on my 20th birthday. I had spent the previous 5 years working and saving for college; but when I finally entered college at 19 on a full academic scholarship, I decided that instead of spending my accumulated savings, I would try my hand at investment.

Here I am 10 years later. What you’ll probably notice by looking at my site is that this is not a story of extreme or fast wealth building.

But it is a story of effective “forced savings” that has provided me significant insight into financial planning, real estate investing, and balancing the books. While it hasn’t always been a barrel of laughs, overall, I’m reasonably satisfied with the outcome so far.

I thought I would share some real world real estate investment thought. Let’s start at the end, where I am today: I currently own 7 condo apartments in my general geographic area. All of these condos are revenue neutral or revenue positive. I don’t have significant savings to fall back on, and I am just now in the process of “cashing in”, by selling my first apartment. My approach is best described as “slow and steady”; my outlook is 20 - 25 years.

Here the top points I like to share about investing in real estate:

1) Path to (instant) riches

I will never argue that real estate investing is an instant, or even particularly easy, path to significant wealth.My bank statement demonstrates that. I am willing to grant that many people are able to turn real estate in wealth quickly; I’m afraid that hasn’t my approach. Instead, I’ve taken the long view, as you can see at my site, with the hope that my real estate portfolio will provide a steady cash flow in 10-15 years time. For me, slow and steady really does win the race.

Just think about it: if you can manage to buy and hold 5 properties, within 15 years all five will turn in heavy revenue and heavy profit. For example, my two oldest properties now generate $3500 in revenue each month, with monthly expenses of just $1400. Imagine what that will look like once I’ve paid off all the mortages!

2) For a cautious investor, take the long view

This a vast generalization, but I hold to it pretty firmly: if your outlook is long enough, you will not lose money. At the worst, investing in real estate is a forced savings.

That’s not to say that you’ll never lose money; circumstances such emergency repairs, a destructive tenant, or rapidly inflating interest rates certainly increase the risk. But, if you can hold on through any such upheavals, you’ll find that within two or three years things will settle and you’ll start to benefit from increased appreciate in property value, increased rental income, or both.

And, while property values might dip for periods, keep in mind that over 5 years it’s virtually impossible that your overall property won’t appreciate. At the very worst, you’ll have paid down some of your mortgage.

Plus, you have a tangible, physical asset. There’s a lot to be said about that kind of peace of mind.

3) Operating costs - if they balance, you’re in the good!

You’re probably not going to earn back your down payment quickly - that’s ok! Keep in mind that the portion of your down payment that goes toward principle (ie: the part not eaten up by lawyer and realtor fees) is still in your hands. It just happens to now be in your property. You will see this money again when you sell.

So, the real goal is to be at least neutral on an operating basis. Ideally, that means that your rents will cover mortgages, strata fees, taxes and maintenance. This might not be possible for the first year or three, but even if you’re paying out a few dollars each month, you are still gaining more than if you were not investing.

4) Tenants - do your research,

I learned this lesson the hard way, when I had a tenant cause about $5000 in damage to one of my apartments. What I learned is that tenants have histories; if they are unwilling to share, or if you don’t receive sufficient references to make you comfortable, it’s probably better to just wait. Personally, I now ask for 3 references, and I require proof that the people I’m talking to are actually who they say they are (requiring a work phone number, for example). It might seem extreme, but this type of due diligence at the beginning increase comfort throughout a tenancy and reduce the chances of serious damage.

5) Tenants, Part Two - Late rent is forgivable - Once and don’t be afraid of the eviction notice

Real estate investing is a business. And, like many small businesses, it is sometimes operated on small margins. That means, if a tenant doesn’t pay their rent, it comes out of my pocket. I know that nothing works perfectly, so I will always forgive the first missed rent if there is a reasonable explanation. However, a second missed rent, and I will immediately begin eviction proceedings.

The laws of our state are very strict when it comes to evictions; there must be good and reasonable cause; here, at least, missed rent is just cause for eviction. Don’t misunderstand; I always keep an open mind. But many individuals will take advantage of a situation if they believe there is no consequence.

All in all, I’d say real estate investing has been a very positive experience and I would recommend it to anyone who has patience and fortitude. Do your research, though, because real estate investing has highs and lows, just like any other type of investment vehicle.

About the Author

Michael Lee-Smith is a real estate investor with over 10 years of experience in buying and holding residential real estate.

« Previous Page