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.
Article Tags: investors, preconstruction, property
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Tags: Agreement Contract, Banks, Condos, Construction Value, Developer, Good Understanding, Handsome Profit, Home Buyers, Investment Strategy, Magnitude, Money, Naked Eyes, Nbsp, Pre Construction, Profitable Investing, Purchase Agreement, Real Estate Investing, Real Estate Investors, Risk And Reward, Unit Condominium Development
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Real Estate Investing For Newbies - Intro To Foreclosure Basics
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| Submitted By: Chris Parks |
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By now of course you know foreclosures are at an all-time high in our country. Nevertheless it is another Real Estate Investing niche that has given many people great potential for making money.
One of the most important things to remember about foreclosure investing is that there are many details to consider. It is not difficult, per se, and once you become familiar with all of the small details you can achieve success in no time at all.
The first thing you need to know about foreclosure investing is how it works.
Basically, a foreclosure is a property that the bank owns due to the fact that the owner of the property neglected to follow the terms and conditions of his/her mortgage, which usually means a failure pay his or her mortgage. In turn, the bank that owns these properties is forced to sell them back to the public in order to recover the money that they lost.
And to go along with this, the bank often attempts to sell foreclosures quickly because they are not making any money by holding onto them. All of this works out to the advantage of a foreclosure investor.
Because homeowners have heard or read about the profit potential, most people facing foreclosure will usually try every option available before selling to a Real Estate Investor. Let’s face it, they know that as Real Estate Investors we are only going to offer a certain percentage of what the property is worth on the open market, but look at the alternative.
The home will be auctioned off. The homeowner will get nothing in terms of money, will lose all of their equity in the house, and have a foreclosure on their credit report. This will probably prevent the homeowner from being able to qualify for another loan for several years.
Depending on the situation the Real Estate Investor, in exchange for control of the property may offer the homeowner a cash payment, make up the missed mortgage payments, and pay all of the penalties and legal costs that have accumulated. In essence the property is brought to a current status and the foreclosure process is effectively stopped.
Real Estate Investors have really helped homeowners in this situation whether they realize and appreciate it or not.
So our job is to find homeowners who are facing foreclosure and either pass on or work the lead to see if we can buy the property. The main thing that makes the foreclosure process very complicated is that it varies from state to state.
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Tags: Advantage, Bank Foreclosures, Control, Credit Report, Facing Foreclosure, Failure, Foreclosure Property, Great Potential, Important Things, Investing Basics, Lost, Making Money, Many People, Mortgage, Nbsp, Niche, Real Estate Investor, Real Estate Investors
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What Is Pre-construction Real Estate Investing?
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| Submitted By: Karen Kusumakar |
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| |
|
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.
Article Tags: investors, preconstruction, property
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Tags: Agreement Contract, Banks, Condos, Construction Value, Developer, Good Understanding, Handsome Profit, Home Buyers, Investment Strategy, Magnitude, Money, Naked Eyes, Nbsp, Pre Construction, Profitable Investing, Purchase Agreement, Real Estate Investing, Real Estate Investors, Risk And Reward, Unit Condominium Development
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Real Estate Investing - It Takes A Team
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| Submitted By: Chris Parks |
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That’s right, Real Estate Investing is a team sport, and if you want to be successful, you will have to build a strong team. No matter how badly you want to, you can not do everything yourself. You just will not have the time or expertise.
As new Real Estate investor you need to begin thinking about who you want on your team. Get referrals from other Real Estate Investors and Real Estate Mentors. It is best to select people who have some type of Real Estate investing experience.
Also, it is extremely important to not have teammates who tell you this can not be done. You need only supportive team members. Surround yourself with link-minded people; negativity will get you no where.
You will build your Real Estate Investing team over time, not overnight. Sometimes it will be by trial and error. Yes, in some instances you will have to pay your teammates, but if you have chosen wisely you will get your investment back many times over.
To build a successful team you need to build a relationship with many different individuals. Choose your teammates wisely and they will help you reach the Real Estate Investing dreams that you so desire.
Your Team Should Include…
Your Spouse/Significant Other
Support at home is critical.
Your Local REIA
In order to associate with like-minded Real Estate Investors and local Entrepreneurs, it is essential that you find a REIA to attend in order to network with fellow Investors.
Other Real Estate Investors
Other Investors are a major player on your team. You will seek their advice or input often and they will be able to provide referrals for many of your other teammates.
Real Estate Attorney
Select an attorney that is familiar with creative Real Estate Investing.
Accountant
You want a certified professional keeping your books, preparing your financial statements, and advising you on tax issues. Make sure they also understand creative Real Estate Investing.
Title Insurance Company
Title searches and closing are often done by Title Companies. Note that in some areas it is common for attorneys to do these functions.
Insurance Agent
Insurance will be needed for all properties that you buy and hold for whatever reason. Not to mention liability insurance. You will also probably want an all-encompassing umbrella policy to protect you and your business. Again select an agent that is familiar with what you do.
Real Estate Agents
Yes, you want Investor friendly Real Estate Agents on your team. It will probably take some time to find a few, but they are worth their weight in gold. Make sure the relationship will be mutually beneficial.
Mortgage Broker
If you need to help a tenant owner get financing, a mortgage broker can come in handy. They can start early in the process and try to get your tenant owners a mortgage to cash you out. Have several different companies at hand. Get referrals and stay on top of them throughout the loan process.
Inspector
Eventually you will become pretty good at inspecting structures, and systems but until then use a professional. A wrong evaluation can cost you thousands.
Licensed Contractor
This is the best person to estimate repair costs. While an Inspector can spot things that need to be repaired, your contractor can give you accurate labor and material estimates.
Appraiser
Again, you will eventually get very good at this, but have an appraiser on your team as you will need help in the beginning.
Notary Public (Mobile)
Some documents have to be notarized and you do not want to wait until the next day when a Motivated Seller is ready to sign your contract. Having a mobile notary on your team allows someone to meet you right at a property.
A Few Others to Take Care of:
? General Handyperson Work
? Demo and/or Hauling Junk
? Plumbing
? Electric
? Termites/Pest Control
? Roofer
? Painter
? Carpet/Flooring
I think you get the point. And if not, do not worry because once you have a Real Estate deal in hand, you will quickly figure out if there are others that you need.
Article Tags: estate, real, team
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Tags: Accountant, Creative Real Estate, Dreams, Fellow Investors, Financial Statements, Instances, Local Entrepreneurs, Nbsp, Real Estate Investing, Real Estate Investor, Real Estate Investors, Real Estate Mentors, Referrals, Reia, Successful Team, Supportive Team, Team Members, Team Sport, Teammates, Trial And Error
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Real Estate Investing - It Takes A Team
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| Submitted By: Chris Parks |
| |
| |
|
That’s right, Real Estate Investing is a team sport, and if you want to be successful, you will have to build a strong team. No matter how badly you want to, you can not do everything yourself. You just will not have the time or expertise.
As new Real Estate investor you need to begin thinking about who you want on your team. Get referrals from other Real Estate Investors and Real Estate Mentors. It is best to select people who have some type of Real Estate investing experience.
Also, it is extremely important to not have teammates who tell you this can not be done. You need only supportive team members. Surround yourself with link-minded people; negativity will get you no where.
You will build your Real Estate Investing team over time, not overnight. Sometimes it will be by trial and error. Yes, in some instances you will have to pay your teammates, but if you have chosen wisely you will get your investment back many times over.
To build a successful team you need to build a relationship with many different individuals. Choose your teammates wisely and they will help you reach the Real Estate Investing dreams that you so desire.
Your Team Should Include…
Your Spouse/Significant Other
Support at home is critical.
Your Local REIA
In order to associate with like-minded Real Estate Investors and local Entrepreneurs, it is essential that you find a REIA to attend in order to network with fellow Investors.
Other Real Estate Investors
Other Investors are a major player on your team. You will seek their advice or input often and they will be able to provide referrals for many of your other teammates.
Real Estate Attorney
Select an attorney that is familiar with creative Real Estate Investing.
Accountant
You want a certified professional keeping your books, preparing your financial statements, and advising you on tax issues. Make sure they also understand creative Real Estate Investing.
Title Insurance Company
Title searches and closing are often done by Title Companies. Note that in some areas it is common for attorneys to do these functions.
Insurance Agent
Insurance will be needed for all properties that you buy and hold for whatever reason. Not to mention liability insurance. You will also probably want an all-encompassing umbrella policy to protect you and your business. Again select an agent that is familiar with what you do.
Real Estate Agents
Yes, you want Investor friendly Real Estate Agents on your team. It will probably take some time to find a few, but they are worth their weight in gold. Make sure the relationship will be mutually beneficial.
Mortgage Broker
If you need to help a tenant owner get financing, a mortgage broker can come in handy. They can start early in the process and try to get your tenant owners a mortgage to cash you out. Have several different companies at hand. Get referrals and stay on top of them throughout the loan process.
Inspector
Eventually you will become pretty good at inspecting structures, and systems but until then use a professional. A wrong evaluation can cost you thousands.
Licensed Contractor
This is the best person to estimate repair costs. While an Inspector can spot things that need to be repaired, your contractor can give you accurate labor and material estimates.
Appraiser
Again, you will eventually get very good at this, but have an appraiser on your team as you will need help in the beginning.
Notary Public (Mobile)
Some documents have to be notarized and you do not want to wait until the next day when a Motivated Seller is ready to sign your contract. Having a mobile notary on your team allows someone to meet you right at a property.
A Few Others to Take Care of:
? General Handyperson Work
? Demo and/or Hauling Junk
? Plumbing
? Electric
? Termites/Pest Control
? Roofer
? Painter
? Carpet/Flooring
I think you get the point. And if not, do not worry because once you have a Real Estate deal in hand, you will quickly figure out if there are others that you need.
Article Tags: estate, real, team
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Tags: Accountant, Creative Real Estate, Dreams, Fellow Investors, Financial Statements, Instances, Local Entrepreneurs, Nbsp, Real Estate Investing, Real Estate Investor, Real Estate Investors, Real Estate Mentors, Referrals, Reia, Successful Team, Supportive Team, Team Members, Team Sport, Teammates, Trial And Error
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Real Estate Investing - It Takes A Team
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| Submitted By: Chris Parks |
| |
| |
|
That’s right, Real Estate Investing is a team sport, and if you want to be successful, you will have to build a strong team. No matter how badly you want to, you can not do everything yourself. You just will not have the time or expertise.
As new Real Estate investor you need to begin thinking about who you want on your team. Get referrals from other Real Estate Investors and Real Estate Mentors. It is best to select people who have some type of Real Estate investing experience.
Also, it is extremely important to not have teammates who tell you this can not be done. You need only supportive team members. Surround yourself with link-minded people; negativity will get you no where.
You will build your Real Estate Investing team over time, not overnight. Sometimes it will be by trial and error. Yes, in some instances you will have to pay your teammates, but if you have chosen wisely you will get your investment back many times over.
To build a successful team you need to build a relationship with many different individuals. Choose your teammates wisely and they will help you reach the Real Estate Investing dreams that you so desire.
Your Team Should Include…
Your Spouse/Significant Other
Support at home is critical.
Your Local REIA
In order to associate with like-minded Real Estate Investors and local Entrepreneurs, it is essential that you find a REIA to attend in order to network with fellow Investors.
Other Real Estate Investors
Other Investors are a major player on your team. You will seek their advice or input often and they will be able to provide referrals for many of your other teammates.
Real Estate Attorney
Select an attorney that is familiar with creative Real Estate Investing.
Accountant
You want a certified professional keeping your books, preparing your financial statements, and advising you on tax issues. Make sure they also understand creative Real Estate Investing.
Title Insurance Company
Title searches and closing are often done by Title Companies. Note that in some areas it is common for attorneys to do these functions.
Insurance Agent
Insurance will be needed for all properties that you buy and hold for whatever reason. Not to mention liability insurance. You will also probably want an all-encompassing umbrella policy to protect you and your business. Again select an agent that is familiar with what you do.
Real Estate Agents
Yes, you want Investor friendly Real Estate Agents on your team. It will probably take some time to find a few, but they are worth their weight in gold. Make sure the relationship will be mutually beneficial.
Mortgage Broker
If you need to help a tenant owner get financing, a mortgage broker can come in handy. They can start early in the process and try to get your tenant owners a mortgage to cash you out. Have several different companies at hand. Get referrals and stay on top of them throughout the loan process.
Inspector
Eventually you will become pretty good at inspecting structures, and systems but until then use a professional. A wrong evaluation can cost you thousands.
Licensed Contractor
This is the best person to estimate repair costs. While an Inspector can spot things that need to be repaired, your contractor can give you accurate labor and material estimates.
Appraiser
Again, you will eventually get very good at this, but have an appraiser on your team as you will need help in the beginning.
Notary Public (Mobile)
Some documents have to be notarized and you do not want to wait until the next day when a Motivated Seller is ready to sign your contract. Having a mobile notary on your team allows someone to meet you right at a property.
A Few Others to Take Care of:
? General Handyperson Work
? Demo and/or Hauling Junk
? Plumbing
? Electric
? Termites/Pest Control
? Roofer
? Painter
? Carpet/Flooring
I think you get the point. And if not, do not worry because once you have a Real Estate deal in hand, you will quickly figure out if there are others that you need.
Article Tags: estate, real, team
| |
Tags: Accountant, Creative Real Estate, Dreams, Fellow Investors, Financial Statements, Instances, Local Entrepreneurs, Nbsp, Real Estate Investing, Real Estate Investor, Real Estate Investors, Real Estate Mentors, Referrals, Reia, Successful Team, Supportive Team, Team Members, Team Sport, Teammates, Trial And Error
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Real Estate Investing - It Takes A Team
|
| Submitted By: Chris Parks |
| |
| |
|
That’s right, Real Estate Investing is a team sport, and if you want to be successful, you will have to build a strong team. No matter how badly you want to, you can not do everything yourself. You just will not have the time or expertise.
As new Real Estate investor you need to begin thinking about who you want on your team. Get referrals from other Real Estate Investors and Real Estate Mentors. It is best to select people who have some type of Real Estate investing experience.
Also, it is extremely important to not have teammates who tell you this can not be done. You need only supportive team members. Surround yourself with link-minded people; negativity will get you no where.
You will build your Real Estate Investing team over time, not overnight. Sometimes it will be by trial and error. Yes, in some instances you will have to pay your teammates, but if you have chosen wisely you will get your investment back many times over.
To build a successful team you need to build a relationship with many different individuals. Choose your teammates wisely and they will help you reach the Real Estate Investing dreams that you so desire.
Your Team Should Include…
Your Spouse/Significant Other
Support at home is critical.
Your Local REIA
In order to associate with like-minded Real Estate Investors and local Entrepreneurs, it is essential that you find a REIA to attend in order to network with fellow Investors.
Other Real Estate Investors
Other Investors are a major player on your team. You will seek their advice or input often and they will be able to provide referrals for many of your other teammates.
Real Estate Attorney
Select an attorney that is familiar with creative Real Estate Investing.
Accountant
You want a certified professional keeping your books, preparing your financial statements, and advising you on tax issues. Make sure they also understand creative Real Estate Investing.
Title Insurance Company
Title searches and closing are often done by Title Companies. Note that in some areas it is common for attorneys to do these functions.
Insurance Agent
Insurance will be needed for all properties that you buy and hold for whatever reason. Not to mention liability insurance. You will also probably want an all-encompassing umbrella policy to protect you and your business. Again select an agent that is familiar with what you do.
Real Estate Agents
Yes, you want Investor friendly Real Estate Agents on your team. It will probably take some time to find a few, but they are worth their weight in gold. Make sure the relationship will be mutually beneficial.
Mortgage Broker
If you need to help a tenant owner get financing, a mortgage broker can come in handy. They can start early in the process and try to get your tenant owners a mortgage to cash you out. Have several different companies at hand. Get referrals and stay on top of them throughout the loan process.
Inspector
Eventually you will become pretty good at inspecting structures, and systems but until then use a professional. A wrong evaluation can cost you thousands.
Licensed Contractor
This is the best person to estimate repair costs. While an Inspector can spot things that need to be repaired, your contractor can give you accurate labor and material estimates.
Appraiser
Again, you will eventually get very good at this, but have an appraiser on your team as you will need help in the beginning.
Notary Public (Mobile)
Some documents have to be notarized and you do not want to wait until the next day when a Motivated Seller is ready to sign your contract. Having a mobile notary on your team allows someone to meet you right at a property.
A Few Others to Take Care of:
? General Handyperson Work
? Demo and/or Hauling Junk
? Plumbing
? Electric
? Termites/Pest Control
? Roofer
? Painter
? Carpet/Flooring
I think you get the point. And if not, do not worry because once you have a Real Estate deal in hand, you will quickly figure out if there are others that you need.
Article Tags: estate, real, team
| |
Tags: Accountant, Creative Real Estate, Dreams, Fellow Investors, Financial Statements, Instances, Local Entrepreneurs, Nbsp, Real Estate Investing, Real Estate Investor, Real Estate Investors, Real Estate Mentors, Referrals, Reia, Successful Team, Supportive Team, Team Members, Team Sport, Teammates, Trial And Error
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Real Estate Investing : Daily Aberration Investors Make
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Submitted By: Tom Beaty  |
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In real estate investing, a common question is which came first, the deal or the plan. A common aberration that people make is not knowing what to do with a great property after they buy it. This is where the struggle begins. They are stuck in a corner because they approached this from the wrong direction. First, you are supposed to make a method. Then you must find an applicable home that fits into that situation.
Planning things is human nature. Future matters such as retirement and college education are all planned. Real estate deals should be planned as well. A rookie investor may jump ahead of the game and forget to concoct a plan. It is up to you to figure out what you will do in the real estate market. What houses will you buy and how do you plan on selling them? Having a method is in your best interest.
Unfortunately, there is no way to get rich quick in real estate. We all tend to fantasize about the big million dollar deals, however, real estate investing is a gradual process. Proceeding slow and steady, will keep you in the right direction to reach your goals. Becoming a millionaire from your first deal is not a realistic goal, but you will probably make some good money.
A good investor will usually make about sixty to one hundred thousand per year with decent investments. This income takes into account that not everything will go according to plan, but assumes that your progress will be steady. You must have rational real estate goals.
No single person can do everything. There are imperative roles that must be filled by some key people if you plan on succeeding at real estate investing. The adept investor always has a team of specialists assisting him. Your real estate agent must be honorable and able to help you analyze the properties. You will need an appraiser and a contractor or an inspector in order to make sure that the house is worth the investment. If you don’t want any hidden surprises surfacing through the course of the deal, you unconditionally must hire an attorney.
You will encounter many situations in the real estate business, and there is no single strategy that encompasses everything. You must have several strategies at your disposal. Investors often find themselves reselling a house urgently after buying it. If you simply don’t have time to get your investment ready for a profit, renting is another valid option. However, there are time periods where the rental market can become ineffective or stall. If you are in this circumstance and absolutely must get rid of the property. you still have the option to offer a land contract or lease option. You may have to sell to cut your losses and sell to another investor if all else fails. A adept investor acts quickly when it’s time to bail.
A rookie investor can refrain from making these mistakes by doing some research and planning. Until you understand the business, you shouldn’t figure out what real estate to invest in. Research one of the books containing the strategies used by the pros. Attend free seminars that will inform you on the best way to invest. Making adept decisions in your real estate investing will certainly help you avoid these common miscalculations.
Article Tags: investor, make, real
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Tags: Aberration, According To Plan, Beaty, Becoming A Millionaire, Best Interest, College Education, Estate Deals, Estate Goals, Human Nature, Hundred Thousand, Investments, Investor, Nbsp, Real Estate Agent, Real Estate Investing, Realistic Goal, Retirement, Right Direction, Struggle, Wrong Direction
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What Is Pre-construction Real Estate Investing?
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| Submitted By: Karen Kusumakar |
| |
| |
|
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.
Article Tags: investors, preconstruction, property
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Tags: Agreement Contract, Banks, Condos, Construction Value, Developer, Good Understanding, Handsome Profit, Home Buyers, Investment Strategy, Magnitude, Money, Naked Eyes, Nbsp, Pre Construction, Profitable Investing, Purchase Agreement, Real Estate Investing, Real Estate Investors, Risk And Reward, Unit Condominium Development
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7 Steps To Make Money In Real Estate Investing
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| Submitted By: Larry Haines |
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#1 Know that you can do it too!
Have you ever stopped to think about who owns all the downtown buildings? Or how about all those apartment complexes you see everywhere? When you see a “For Rent” Sign on a house do you wonder how many more rental houses that guy owns.
Well, the point to these questions is to say that you can be one of the millions of people that own rental real estate too? That actually comes as a surprise to some people and that is why the title above says KNOW that you can do it too! You can and you should. Let me repeat that. You can and you should.
There are plenty of excuses people use to say; “well, I can’t do that” and as the saying goes - “You either can or you can’t, either way you are right!” Here’s what I want you to do. Just below write out the first few “I can’t” reasons. I’ll even get you started…
What if you could turn it around so there were no excuses, no more “I can’t”? Wouldn’t that allow you to achieve your goal of financial freedom? Wouldn’t that allow you to create the result of buying properties below market value so you could make money time after time?
What we intend to do is what we will ultimately get. The more clear the intention, the better chance we will do the things necessary to get it. For instance, if you say; “I want to invest in real estate”, that intention is very vague and not easily acted upon. However if you can describe what kind of real estate you want it becomes much clearer and much more likely to happen.
As an example, if you say; “I want to own a rental duplex in the hospital district with each side being 3 bedrooms and 2 baths and it needs to cash flow at least $150 per side and I don’t want to pay more than $10,000 down and would love owner financing”, you are much more likely to find what you are looking for.
Is it easier to believe that you can own a duplex in the hospital district or that someday you want to be rich? Your mind will help you be successful if you truly believe and articulate what you want in detail.
#2 Begin with the end in mind
In Stephen Covey’s book “The Seven Habits of Highly Effective People”, habit number one is “Be Proactive”. You’re being proactive just by reading this article. You’re taking action. Habit number 2 is “Begin with the end in mind”. Set a goal. Know what you want and plan how to get there.
So many would be investors don’t have a road map to where they want to end up so they don’t end up anywhere. THIS IS A CRITICAL STEP!!
There is a major difference between investing in real estate and being a real estate investor. By inheriting a property or buying a house that pays you $2 per month, you are an owner of an investment property. (Many people actually loose money each month because they didn’t buy right but that is another story). Technically, they are invested in real estate.
But they are not real estate investors. They don’t have a plan of accumulating wealth with strategies and tactics that get them there over time. (Sorry, this is not a get rich quick opportunity…lottery tickets sold elsewhere).
A plan should have realistic goals. For instance, if your desire is to retire wealthy, what do you mean by “retire wealthy”. Be very specific. I have one client that defines it as “I want my wife to be able to stay home and I don’t want to have to work. I need about $6,000 to pay my bills and I want to be able to do some traveling so I want $10,000 per month”
You should have a long term goal of 10 - 15 years or more; medium term goals in the 5 - 10 year time horizon and shorter term goals in the 2 - 5 year range and immediate goals that define what you are going to do this year. Let’s take a look at a sample of this…
A 52 yr. old working male with a wife that works as a teacher might start with basic goals as follows:
10 year goal
retire at 62 with no reduction in lifestyle [so they need to replace $82,000/year income ($6,834 per month) which might take 10-12 free and clear houses generating cash flow in the $500 - $600/month range]
5 year goalOwn 15 housing units (could be apartment or duplex generating at least $150/unit in free cash flow ($2,250) to retire my wife to be looking for real estate full time).
Own Real Estate in my self Directed IRA - grows tax deferred or even tax free if using a ROTH
2 year goalBe buying 3-4 housing units/year (one per quarter? in appreciating areas).
ImmediateGet in depth education from local investors doing deals in my area.
Join the local REIA - Real Estate Investors Association.
Understand my financial situation - set a household budget, savings & Investment plan, income statement and balance sheet (which you will need for loans anyway).
Develop a buying criteria - (what do you want to buy, where, how much, what condition, how big, etc).
Find an investor friendly real estate agent (to help me find property that fits my criteria).
NOTE: this is just a summary of goals while a real plan is more in depth & detailed.
#3 Model success - Another way to say this is “don’t recreate the wheel”. If 8,000,000 people have already done something and hundreds of thousands are currently doing it too, DON’T TRY TO MAKE IT UP AS YOU GO!
There are many real estate investors that are happy to share their experience over a cup of coffee or lunch (you buy of course). The investors I have been privileged to know are a caring, sharing group of people that want to give back and help people. That’s how I got interested.
Now let’s talk specifics. If you were going to go into the hamburger business would your chance of success be better if you were starting your own burger place or buying into a big name franchise?
Assuming all things were equal, you wouldn’t have to develop all the systems and training for your own business if you went the franchise way. You would have the expertise of people that have been there and made mistakes and refined their systems and processes to improve the business. You would have the help of other franchise owners in your area to let help you get started and to talk with about local business trends and situations and on and on….
The point of this is to find out what other successful people are doing and model them. Don’t recreate the wheel. If your advertising isn’t working to generate leads, find someone that has a “lead generation machine” and copy what they are doing. (Please don’t infringe on copyrights, etc). But if they have a web page driving lead traffic, you should consider it. If they are putting signs out, you should consider it. If they are doing direct mail, you might give it a try. I think you get the point.
Look at every process as you find, fund, fix and flip real estate and break down the components to business processes and then put a system around the process to help you make it more efficient and more manageable.
#4 Focus, Focus, Focus
Lack of focus is probably the single biggest cause of new investor failure that I have seen. Every month people are buying new books and tapes from the circuit guru that flies into town for the REIA meeting or some big name putting on their own event. I’m not saying that you shouldn’t expose yourself to different techniques to buying and/or selling property but most people have a “flavor of the month” investing technique that they get excited about and don’t ever focus creating a business (being a real estate investor).
Look at your resources, network of people and resources, time you have and level of difficulty and commitment to do a specific type of transaction. You should pick one that considers your time and resources and then get really good at it.
#5 Take action
You don’t have to be good to begin, but you have to begin to be good. This is the shortest section here. TAKE ACTION! Do something. One of my bible study teachers used to say to me after I asked so many questions was; “Larry, Just get a mitt and get into the game!” Translation for real estate investors….”Just get out there and make offers”. You can’t make money until you get a contract that is signed by the seller, right?
#6 Build a team of experts
You’ll want to have a team of experts on your site and should have a title attorney, CPA, property manager, appraiser, and contractor all in place.
#7 Make offers!
You can learn a lot and not make money. You can plan a lot and not make money. You can network with hundreds of people and not make money. You can attend meeting after meeting and conference call after conference call and not make money.
Start making offers and start making some money. How many? How about 1 a day to start and then get up to 50-100 per month? Believe it or not, at some point someone will accept one of your offers and you’ll be “off to the races”.
Article Tags: make, people, real
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Tags: Apartment Complexes, Baths, Bedrooms, Better Chance, Duplex, Financial Freedom, Intention, Invest, Investing Money, Larry Haines, Money Investing, Money Time, Nbsp, One Of The Millions, Owner Financing, People, Rental Houses, Rental Real Estate, Surprise, Time After Time
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