So how do you go about buying and financing preconstruction properties? How exactly do you buy preconstruction real estate? What does pre-construction mean exactly?
Essentially, buying pre-construction properties means buying homes or condos that haven't been built yet but are in the planning stages of development. Buying pre-construction also means buying NEW homes or properties. Which means, as an investor, you're don't have to do any remodeling or repairs - which can save you a lot of money and headaches.
Plus, if you're buying a new property you can select the location of the condo or townhouse within the development - so if you get in early enough you can buy the property that has the good view or is tucked away from the main street so its quiet.
If you do solid research, and are confident in a region, city, neighborhood, look for a pre-construction opportunity. This will allow you to save a great deal of money as you get in early and also have more control in the layout of the property.
Keep this in mind when looking to buy property, many times the earlier you get in on an investment property the better. It's much like asking if an owner would like to sell a property even if there's no for sale sign. That's why a pre-construction property is ideal. There's not even a house on the piece of land yet, so you can tailor the new property to what's selling in the market today.
Often you’ll have the option to sell this property to another buyer even before the property is completed. Contact large brokerage firms in markets or cities that you see as growing and offering some value to home and rental seekers - this is where you want to buy a pre-construction property.
Determine why the are is growing and why more housing construction is going up in the area. Is it a cool factor or growth based on a new company relocating? You want both, ideally. There must be job growth for the area to sustain a rise in value over time.
Pre-construction sales help the builder secure a loan. Often, a lender will require over half the property to be sold before that issue a loan. So there will be some pressure on the builder to want to make some deals and sell some pre-construction properties early in the process. This where you come in and can potentially get a good deal on an investment property.
Ensure that the company you're buying the pre-construction property from is in good standing and you will get your money back if the property is not built. Has the construction company been around a long time? What kind of assurances are they giving you? There's no need to put all of your money down on the property, of course.
Also, take a look at other buildings the firm has created - and talk to other investors who have worked with the builders. Obviously, if it looks like most of the units or buildings in the project on going to sell out rarely quickly, then that's a good sign there's value in the constuction project. There's even the potential to buy a pre-construction property and sell it before it's finished - yes, this is rare but in certain cities this does happen.
Preconstruction real estate isn't worth as much since the condo or building is not complete and it's not clear how much demand there will be for the condos when they are finished. Those who buy early on take on more risk, but also more reward if the demand for the units increases. Think about a condo in Portland or Seattle or Miami. As the building nears completion, and everyone sees how attractive it will be, the demand will increase.
Additonally, have the agreement map out a time frame for completion with deductions if the dates are not met. Yes, there are risks to buying a pre-construction investment property but there are also greater rewards.