Preconstruction Investing

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Many people believe that preconstruction investing is one of the easiest forms of real estate investing. You simply buy a condo in the preconstruction phase, wait until the development is ready and you sell it for a profit.  

Why buying preconstruction?

It is in the developer’s best interest to sell the project at the preconstruction phase. It takes approximately two years to build a high-rise building. The faster the developer sells, the less continual carrying costs there are. The developer will save thousands of dollars on marketing campaigns and will dramatically reduce the risk of getting caught in a changing market. Most preconstruction projects will pass this profit margin to the buyers and investors, discounting 10%-15% off the price.

Another good reason to buy preconstruction is that you are buying a brand new property. You usually won't need to worry about mechanical problems. In most preconstruction projects, you will be able to choose your color scheme and sometimes upgrade the finishes of your future property.

What is the process of buying preconstruction?

After you went to the developer's sales center and looked at floor plans, you will be required to put $2,500-$5,000 reservation fee (refundable) to show good faith. You will then have about two weeks to negotiate the purchase and sale agreement and choose your finishes and upgrades. When you sign the purchase and sale agreement, you will be required to pay 5%-10% of the sales price as a non-refundable deposit. After that, all you need to do is wait until the project will be completed and you can close on your property.

How am I going to make money in preconstruction investing?

It all starts in the searching phase. You need to know where to buy in order to get the best return on investment. It doesn't have to be the most prestigious development, not even a luxury development. Research your market or hire a buyer's agent to help you.

You will need to know about the project a long time before it is available to the public, so when it is available, you will be the first to buy. You want to choose the best selling unit at the best price possible (most developments will increase the prices as construction is closer to completion).

Negotiate for the best terms. Since most preconstruction projects won't negotiate on the price, you should negotiate for better terms for you. Less deposit money, free upgrades or pre-paid association fees are a good place to start.

After you close, sell your property for a profit. You will need to make sure you are aware of all preconditions when purchasing preconstruction. For example, some developers will not allow you to sell your property for a year after closing.

The Pros’ way of preconstruction investing.

In real estate, money is made when you buy, it is only collected when you sell. Remember that; it will save you a lot of money and agony. To negotiate the price in a preconstruction you will need leverage, a lot of leverage, and unless you're going to bid on at least five units, you are going to be just like everybody else... Think about it, if you're planning to purchase a $500,000 condo you are not a big shark. But what if you can come with another five investors like you and to bid on six condos? Suddenly, you have become a $3,000,000 transaction. It will be hard for the developer to say no to negotiations now...

If you are interested in joining efforts with others like you, complete this form and we will contact you to discuss your opportunities. It doesn't matter if you are buying as an investment or for a primary residence. As long as we all come together and tie our offers together, we will have a better leverage and we will get a better deal for all of us.

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