A little help guys

I know that Im beating this dead horse, but Im sure it will get up and walk.

Anyway, I have been coming into contact with alot of groups that are putting together deals where people can invest in pre construction. I know every is screaming don’t do it, but I am would like to know how to think each deal through clearly. I am convinced there is a much better way than following our reliable and truthful mainstream media. All I am looking for is to learn how to fish( evaluate my on deals)- I know there is no free lunch(get rich quick) but I would like to learn how to make an educated decision in this area of REI. So can any pass on some wisdom or at least point me in the right direction.

Here are the questions that I’ve considered asking these groups so far. If Im missing something or worried about that is irrelevant please let me know.

Also, If anyone could tell me what a good deal would or wouldnt have, Id appreciate it.

  1. Where exactly are the houses being built e.g. what city/zip code?

  2. Are the contracts assignable?

  3. How much is the referral fee?

  4. In what order are the houses sold?

  5. What kind of property is it SFH/Condo(rooms/beds/baths)?

6)Can the mortgage be taken out after the property has been completed?

7)Will there be a building coat break down?

8)Which builder will I be investing with?

  1. Can I get more than 2 properties?

  2. Can I pay cahs and not by credit card

  3. Can I adjust the loan amount, without having to include 6 months of mortgage payments? What is the flexibility of the program?



If you’re planning to do this for an investment, I would say DON’T DO IT. In my opinion, this is like playing Russian Roulette with bullets in 4 chambers. Do you feel lucky?

We know that there is a looming crisis in subprime loans, which may spread to a lot of main stream financial institutions. We also know that that there is a looming flood of foreclosures and that the economy is due for a recession. By gambling on pre-construction, you will be betting that the housing market will recover by the time the house is done and that there will be someone to flip your house to.

You asked a lot of questions, but not the most pertinent one. The question you should have asked is “What will the housing market be like 12-18 months from now?”

In my opinion, your pre-construction idea is 3 years behind the current reality. Better catch up!

Good Luck,


I guess I’m late to the party, because I’ve never heard of groups investing in pre=construction. Are you saying that some investment promoter is pooling funds together for this purpose?

I understand the concept of buying pre-construction, of course, but what you’re talking about sounds more complicated. The way I understood pre-construction, you simply put your earnest money down, write a contract, and hope that the property is worth more when it’s finished so that you can assign it.

What is it that you’re talking about? Thanks.


I am aware there that thee is a problem in the subprime market,but that is only one to two percent of the whole market. Now this is something that I heard and I would love to know where I could verify that fact. I actually read that on the clark howard website, but he di not refrence the source.

Im trying to be optomistic without being foolish. The markets that I am looking at are in Arkansas and Texas. Both of which seem to not have been through the high run up as in other areas so I feel positive about this.

One last quesion Mike. If the house cant be sold, the worst case secnario is I have a house on my hands? I wouldnt mind that so much if it was positivly cash flowing.

To Paul,

The idea is pretty much as you said. I pay a company a referal fee, sign a contract and hope for the best. I said group because, the way it was explained to me is that the houses are deeply discounted because of group buying power. Sorry for any confusion.

Thanks for the info so far, but does anyone have any experince with pre construction; good , bad , or otherwise. Id like to hear from you. Also does anyone have a way of finding out growth predictions in areas via government or private websites, or market pricing services?


There’s a reason why no one is answering your questions. Experienced, successful, well educated investors on this site are telling you NOT to invest. Success in this business depends on knowledge and experience, both you dont have and are ignoring from people who do this and do this well. Pre-construction is speculation. Speculation is VERY risky, even in a good market, and we are potentially heading into an extremely huge downturn in housing prices.

Your point about holding one of these deals if the market goes down makes no sense. Likely, these deals WILL NOT positive cashflow, and even if they do, how will you be a landlord out of the country??? Read PM’s posts-- being a landlord is very hands on. How can you reasonably expect to be a landlord when you live in another country???

Despite saying you are not trying to get rich quick, YOU ARE in fact trying to get rich quick. If you do decide to buy one of these deals despite everyone’s advice, please let me know where you buy and please keep in touch with me. I am still looking for my first deal and can close very quickly before you go into foreclosure and your credit is ruined.

I know people on the site are very good at what they do an I appreciate the advice, I would just like to know how to educate my self. As you stated, all the well educated investors are are giving me advice to stay away from this. I just want to know how they are coming up with information. What charts are they looking at? What books are they reading?


Oh by the way NJREStudent

Wasn’t it you that said no one knows where the market is going, because that whats makes a market a market? Yeah, that was you. So as a newbie, like myself,why dont you share some helpful information, if you have it. And keep all of your other opinions to yourself. Thanks.

I’m a newbie here to, but the one thing I have learned is that books and tapes and seminars will only get you so far. Experience is by far a much, much better educator. Since you don’t have it (nor I), trust the experience of everyone here. There will be no book or chart that will tell you why it is, just like there is no book that will tell you how to call heads or tails on a coin flip. This business is not 100% exact science-- there is no perfect formula or excel spreadsheet that u can just plug this all into and get out a perfect answer.

For the experienced investors- please correct me if I am wrong.

No, thats not what was said. The general consensus here is that the market is going down, but we all disagree as to the severity-- THAT"S WHAT MAKES A MARKET.

Helpful info? Yes, we all have given it-- DON"T DO PRECONSTRUCTION.

Stop with the silly questions. Go ahead and do it already

Silly questions, come on NJREStudent. Im looking to get educated. Do you have anything of value to add to the original thread or not? If not, thats fine, just move along because your comments are not constructive.How about sharing what you do as a student since you insist on commenting. If someone has information, please feel free to share.

ok. good luck then.

That isn’t real estate investing, it’s speculation.

–verb (used without object), -lat·ed, -lat·ing.

  1. to engage in thought or reflection; meditate.
  2. to indulge in conjectural thought.
    3. to engage in any business transaction involving considerable risk or the chance of large gains, esp. to buy and sell commodities, stocks, etc., in the expectation of a quick or very large profit.

This is a good link: http://www.businessweek.com/ap/financialnews/D8NNLCCG2.htm?chan=search

It pretty much says that the home construction business is over populated at the moment and that 2007 is going to be an awful year. I heard a statistic this past weekend that said that new home builders had enough homes built to supply the demand for the next three years.

I would suggest if you’re going to speculate on new home construction, you’d be well served by reading every report that you can on the subject because it’s a very risky path. Speculation is why so many foreclosures are happening now.

And in answer to this:

The ones you should be looking at. You asked a question and got answers. Don’t expect someone else to do your due diligence. Studying the situation is up to you.

We’ve only had THAT discussion about a million times in here!

Bobbi- thanks for the link.

KDh I got you, I won’t start this conversation again.

Anyone else have any input?

As kdh mentioned there are books that I need to read. Any titles that would lend some insight?



For the record: Keith didn’t say anything about books you need to read, BobbiOh noted that you should read every report that you can about specualtion and/or the new home construction world…


I contracted six preconstruction properties between 2004 and 2006. Four with one builder (two in one project, two in another) and two with another builder (one in one project and one in another).

My plan was to hold for rental income until the properties had appreciated significantlym, then 1031 exchange to other investment properties.

So far I have completed settlement on five of the six properties. The sixth will be completed in April this year. Of the five properties I purchased, two were tenant occupied for a year and are now vacant. I have renters in two others, while the fifth property has been vacant since I bought it in April last year.

In the course of the last couple of years, my coastal SC retail market went from very hot to lukewarm. Resale inventory is really high right now with fewer buyers looking. Everyone says this summer will be better. The builder who is finishing my sixth property has really slowed down his construction pace because his pre-construction inventory is not selling.

Preconstruction investing is speculating that the market demand for either sale property or rental property will be there when you take delivery of your property. You need to have a fallback plan or an alternate exit strategy if things don’t work out as you had hoped.

Personally, I have the resources to carry me through the slow times. Right now, even though I have three vacant properties in my rental portfolio, my total portfolio is still generating a positive cash flow.

If you don’t have the financial resources to carry the property when your primary exit strategy fails, then you shouldn’t be actively pursuing this niche. There is less risk with other investing strategies.

Given the current climate of the real estate market, I am waiting on the sidelines until later this year when the foreclosure property market really heats up. To prepare, I am consolidating cash by selling one or two of my marginal producing properties or refinancing equity to take cash out of a couple of my rentals.

I am of the opinion that the real estate bubble is still slowly deflating. We have not seen the bottom yet, but we are close and should be there by the end of the year. The double digit appreciation we saw that made preconstruction property so attractive peaked in 2005. My crystal ball tells me that appreciation will return to a more normal 2-3% (plus or minus) adjusted for inflation.

In the days of 15% appreciation and 5% interest rates on our financing, we could convince ourselves that we were making at least 10% per year on anything we purchased. Said another way, our cost of financing was a negative 10% – how could we lose money?

In the more rational times ahead, if it costs 7% - 8% for the money to purchase a property that only appreciates 5% per year (2% inflation adjusted), the quick profit opportunities in pre-construction speculation are going to be a lot harder to find, if not impossible. The quick flip scenario will not be the most probable exit strategy for most.

Alternate strategies such as hold for rental income, or sell on lease option, will still mean delaying the sale of the property for a couple of years. Chances are, the property will not cash flow as a rental holding. If the property does not produce a positive cash flow as a long term rental holding, then I would not recommend you jump into the game without substantial financial resources to carry you.

Thanks for the posts.

If you need to ask questions like that to a forum, it is clear you should not be investing that money yet in pre-contruction deals.

No education on real estate in all its forms and deciding to invest = taking money to casino and playing craps (speculators).

Speculating is for people that want money the easy way and are unwilling to do what it takes to learn how to actually invest.

Putting money into a deal before putting money into your real estate education = EXPENSIVE SEMINAR.