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
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.
Tags: Agreement Contract, Banks, Condos, Construction Value, Developer, Good Understanding, Handsome Profit, Home Buyers, Investment Strategy, Magnitude, Money, Naked Eyes, Pre Construction, Profitable Investing, Purchase Agreement, Real Estate Investing, Real Estate Investors, Risk And Reward, Unit Condominium Development
Whether you are BRAND NEW to real estate investing or an expert in the game, it’s critical that you understand these 7 Simple Steps to real estate investing.
First things first…
* Real Estate is NOT a get rich quick scheme. However, if you learn the foundations and put them into practice, you will make more than enough money to realize any and all of your dreams and goals.
* The real estate bubble is not going to burst! The real estate market will, however, shift and the real estate market will change - just as it always has! What’s “hot” now may turn ice cold in the next 3 years (or perhaps even 3 months). But, there are ways to “bubble proof” your real estate investments. It’s actually quite simple.
Did you know that in the United States, in 1975, the median home price was $33,300? In 2005, the median home price was $195,000. Historically, the average home doubled every 7 years. If you do the math, it should be well over $200,000.
OK… Now, having said that… The real estate market WILL change and what is “working” today in real estate may not in the future… The rental market was strong a decade ago, but has been soft in recent years. We are getting ready for a turn once again.
Real Estate IS a cycle… and cycles have some degree of predictability. With predictability, you can grow your real estate business into a cash-producing, profit-pulling machine that runs itself WITH the changing real estate market trends. It is still possible to make money in real estate. In fact, now is just as good a time as any to get started in real estate investing.
But, you’ve got to make wise investments. Sure, you may make some SERIOUS cash in pre-construction, but what happens if (no, not if - when) the market shifts and there are suddenly 35 identical properties on the market for sale in the same building? How long can you afford to carry a negative cash flow on the property?
Or how about taking over property ’subject to’? Sure, it’s a great strategy and lenders may be inclined to turn the other way and not exercise the “due on sale” clause as long as the interest rates are at rock bottom prices (You know, those sellers that you’re usually taking property subject to from usually don’t have the lowest interest rates, right?) If the interest rates spike to 10-11%, don’t you think lenders might be MUCH MORE inclined to exercise their option to make you pay off the 6.5% note?
What this means is simply that you must be experienced in the basics - the tried and true techniques, strategies and systems that have worked in the past, are STILL working and will work in the future. You’ve got to have all the tools in your bag so that you can go with the flow and not be affected when real estate markets begin to shift (which they are already in the process of doing, in case you’ve missed that memo! 
Step #1 - Set your plan: Figure out what your long term real estate goals are (aka retirement and wealth building) and figure out what your short term needs are with regard to making money in real estate. Then, set up the proper entities and put the plan in place.
Step #2 - Determine what your target market will be: You cannot be all things to all real estate markets. If foreclosures appeal to you, start investing in the foreclosure market. If you want to be a landlord, look to out of state owners to focus your real estate marketing efforts.
Step #3 - Be consistent and persistent: Real Estate is not a get rich quick scheme. Real Estate is get wealthy over time and put some quick cash in your pocket today. You’ve got to follow your plan and stick with it to see real results in real estate. You’ve also got to continue to increase your education and your experience.
Step 4 - Don’t fall into the “Analysis Paralysis”: Learn to analyze properties quickly. Don’t get caught up overthinking. It’s quite simple actually: What’s the property worth? What does the property need for repairs? And how much can you get the property for? It all comes down to numbers!
Step 5 - Become a master of finance!: Real estate is the business of marketing and finance. You must learn about mortgages and interest rates and loan programs that are out there. You must know how to use finance to negotiate your deals and to sell your properties.
Step #6 - Become a skilled problem solver: The reason you will get real estate deals that others don’t, is because you are able to solve people’s problems. Anything goes on the real estate playing field. You’ve got to be ready!
Step #7 - You must continue your education: It is important that you are always investing in your education and learning new tactics, strategies and tips that will help you make more in real estate.
If you enjoyed this article, make sure to look up the other articles discussing The 7 Simple Steps To Making Money on Real Estate. The next article discusses Step #1 - set your plan in further detail!
The Next Level Institute is dedicated to helping real estate investors - whether a brand new or a seasoned investor - become more successful with less effort. Get your free 4-part mini-course on finding deals AND learn the 7 keys to sucking in the deals faster than a “Hoover” vacuum! Get your free e-book at: http://www.7steprealestate.com
About the Author
The Next Level Institute is dedicated to helping real estate investors - whether a brand new or a seasoned investor - become more successful with less effort. Get your free 4-part mini-course on finding deals AND learn the 7 keys to sucking in the deals faster than a “Hoover” vacuum! Get your free e-book at: http://www.7steprealestate.com
Tags: 3 Years, Decade, Enough Money, Estate Business, Foundations, Len, Market Shifts, Market Trends, Math, Median Home Price, Negative Cash Flow, Pre Construction, Predictability, Proof, Property Subject, Real Estate Bubble, Real Estate Investing, Real Estate Investments, Simple Steps, Wise Investments
Whether you are BRAND NEW to real estate investing or an expert in the game, it’s critical that you understand these 7 Simple Steps to real estate investing.
First things first…
* Real Estate is NOT a get rich quick scheme. However, if you learn the foundations and put them into practice, you will make more than enough money to realize any and all of your dreams and goals.
* The real estate bubble is not going to burst! The real estate market will, however, shift and the real estate market will change - just as it always has! What’s “hot” now may turn ice cold in the next 3 years (or perhaps even 3 months). But, there are ways to “bubble proof” your real estate investments. It’s actually quite simple.
Did you know that in the United States, in 1975, the median home price was $33,300? In 2005, the median home price was $195,000. Historically, the average home doubled every 7 years. If you do the math, it should be well over $200,000.
OK… Now, having said that… The real estate market WILL change and what is “working” today in real estate may not in the future… The rental market was strong a decade ago, but has been soft in recent years. We are getting ready for a turn once again.
Real Estate IS a cycle… and cycles have some degree of predictability. With predictability, you can grow your real estate business into a cash-producing, profit-pulling machine that runs itself WITH the changing real estate market trends. It is still possible to make money in real estate. In fact, now is just as good a time as any to get started in real estate investing.
But, you’ve got to make wise investments. Sure, you may make some SERIOUS cash in pre-construction, but what happens if (no, not if - when) the market shifts and there are suddenly 35 identical properties on the market for sale in the same building? How long can you afford to carry a negative cash flow on the property?
Or how about taking over property ’subject to’? Sure, it’s a great strategy and lenders may be inclined to turn the other way and not exercise the “due on sale” clause as long as the interest rates are at rock bottom prices (You know, those sellers that you’re usually taking property subject to from usually don’t have the lowest interest rates, right?) If the interest rates spike to 10-11%, don’t you think lenders might be MUCH MORE inclined to exercise their option to make you pay off the 6.5% note?
What this means is simply that you must be experienced in the basics - the tried and true techniques, strategies and systems that have worked in the past, are STILL working and will work in the future. You’ve got to have all the tools in your bag so that you can go with the flow and not be affected when real estate markets begin to shift (which they are already in the process of doing, in case you’ve missed that memo!
Step #1 - Set your plan: Figure out what your long term real estate goals are (aka retirement and wealth building) and figure out what your short term needs are with regard to making money in real estate. Then, set up the proper entities and put the plan in place.
Step #2 - Determine what your target market will be: You cannot be all things to all real estate markets. If foreclosures appeal to you, start investing in the foreclosure market. If you want to be a landlord, look to out of state owners to focus your real estate marketing efforts.
Step #3 - Be consistent and persistent: Real Estate is not a get rich quick scheme. Real Estate is get wealthy over time and put some quick cash in your pocket today. You’ve got to follow your plan and stick with it to see real results in real estate. You’ve also got to continue to increase your education and your experience.
Step 4 - Don’t fall into the “Analysis Paralysis”: Learn to analyze properties quickly. Don’t get caught up overthinking. It’s quite simple actually: What’s the property worth? What does the property need for repairs? And how much can you get the property for? It all comes down to numbers!
Step 5 - Become a master of finance!: Real estate is the business of marketing and finance. You must learn about mortgages and interest rates and loan programs that are out there. You must know how to use finance to negotiate your deals and to sell your properties.
Step #6 - Become a skilled problem solver: The reason you will get real estate deals that others don’t, is because you are able to solve people’s problems. Anything goes on the real estate playing field. You’ve got to be ready!
Step #7 - You must continue your education: It is important that you are always investing in your education and learning new tactics, strategies and tips that will help you make more in real estate.
If you enjoyed this article, make sure to look up the other articles discussing The 7 Simple Steps To Making Money on Real Estate. The next article discusses Step #1 - set your plan in further detail!
The Next Level Institute is dedicated to helping real estate investors - whether a brand new or a seasoned investor - become more successful with less effort. Get your free 4-part mini-course on finding deals AND learn the 7 keys to sucking in the deals faster than a “Hoover” vacuum! Get your free e-book at: http://www.7steprealestate.com
About the Author
The Next Level Institute is dedicated to helping real estate investors - whether a brand new or a seasoned investor - become more successful with less effort. Get your free 4-part mini-course on finding deals AND learn the 7 keys to sucking in the deals faster than a “Hoover” vacuum! Get your free e-book at: http://www.7steprealestate.com
Tags: 3 Years, Decade, Enough Money, Estate Business, Foundations, Len, Market Shifts, Market Trends, Math, Median Home Price, Negative Cash Flow, Pre Construction, Predictability, Proof, Property Subject, Real Estate Bubble, Real Estate Investing, Real Estate Investments, Simple Steps, Wise Investments
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.
Tags: Agreement Contract, Banks, Condos, Construction Value, Developer, Good Understanding, Handsome Profit, Home Buyers, Investment Strategy, Magnitude, Money, Naked Eyes, Pre Construction, Profitable Investing, Purchase Agreement, Real Estate Investing, Real Estate Investors, Risk And Reward, Unit Condominium Development
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