April 2006 Real Estate Investment Newsletter  
 

04/18/2006

The Real Estate Investment Club Directory

What is Preconstruction Property Investing?

This month we take a closer look at what the Pre Construction Real Estate Investing boom is all about and why it continues to be one of the best real estate investment opportunities available. Why do the savvy investors consider it to be the best vehicle for real estate investing?  How does it all work? What is the best way to profit from it?


Simply put: The most Profitable way to Invest in Real Estate!
 
Baby Boomers currently make up a tremendous portion of our population, with most of them reaching retirement over the next 15 years. Research has shown that a big percentage of these Boomers plan to move away from their current location, and are looking to move to areas that possess warmer climates and a better level of living (which is the Southwest and Southeast portions of the United States). Another factor involved is that a large number of these Boomers are well off financially and have the needed money and resources to relocate and invest in a new home or even a second home.

Armed with this knowledge, real estate investors can utilize it to their advantages. Here are some items to remember before deciding on a new real estate investment property.

  • Investing Leverage: Small down payment and no mortgage payments until completion.
  • Built in equity from ground zero. Buy at a discount - lock in a equity profit when you make your purchase.
  • Appreciation works in your favor. (12 month build out period)
  • Lock in today's prices for future delivery of completed product.
  • Less risk with Pre Construction investing than with traditional real estate investing.

Superior Product

  • Ease of the purchase process. (Turn-Key for investors - Multiple Investment Opportunities)
  • Ability to customize for resale potential. (Paint, flooring, amenities, bathrooms & lighting)
  • Modern designs. (energy efficient, desirable floor plans, kitchens, bathrooms & new appliances)
  • New Property - No maintenance / repair costs. (Builders warranty on new home & Manufactures warranty on appliances)

Superior Exit Strategy

  • Market your new home prior to completion. (Allows you to have a buyer waiting to purchase your home prior to its completion)
  • Ease of Resale. (Large pool of potential buyers for completed new homes)
  • Ease of Rentals. (Large demand of potential renters for new homes)
 
Preconstruction Real Estate Investments

The preconstruction real estate investment process is an opportunity that allows investors to purchase the finished properties of tomorrow at today's lower (preconstruction) prices.

While this relatively new program provides an excellent opportunity for all the parties involved (investors, builders & developers), the biggest advantage falls to the investor who gains the chance to buy their pre construction home at a discounted price, without being required to invest a large amount of out of pocket money. Most preconstruction investment programs require an initial investment as low as 5% of the total costs of the home. As the buyer (investor), the pre construction opportunity allows for a limited investment, while receiving substantial discounts over the future price of the finished home.

Pre construction investment programs benefit the project developer by allowing them to presale the entire development property before any construction begins, allowing them to obtain the lending for the project with relative ease. To begin the process, the property developer puts out for pre sale the building plans for the proposed development.

At the time of this presale, the buyer does not see the finished product (which is where we get the term "preconstruction" investment), only the floor plans for the future homes. Because of the buyers willingness to invest without seeing the finished product and the fact that they are helping the developer achieve the required percentage of pre sold units for construction financing, the prices for these homes are usually at a significant discount below the proposed price of the finished unit.

Once the investor has selected their floor plan and the lot location, the next step is placing the reservation. As previously stated, most preconstruction properties have a very reasonable reservation amount; at contract or at the beginning of construction normally between 5 and 10% (with some programs hitting up to 20%) of the total cost for the home, plus closing from 3 to 4%. An example of this low out of pocket investment amount can be found with the current preconstruction program being offered on this site, which requires an investment of only $5,675.00 complete out-of-pocket for a $240.000.00 new home. That's an excellent use of leverage with only 2% all in.

After the proper paper work has been completed and funding has been finalized, the next step is the construction phase. This phase will normally last anywhere from 6 months to 2 years depending on the type of project, with single family homes typically taking only 8 to 12 months. During the building process, there may be several increases in the value of your home. At completion, you can sell your home and harvest the built up equity - appreciation or rent it out for cash flow. For those who plan to sell, it can be marketed 3 months prior to completion.
 

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Pre Construction Real Estate Investment Opportunities

Pre Construction Real Estate Investment Opportunities

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