How do you do due dilligence on a preconstrcution deals

I posted earlier this week about a pre construction deal that has been presented to me. I would like to findout what questions I need to anwser before I pull the trigger. I’ve had some very helpful advice about why these deals are dangerous, but I still dont know how to decide if a deal is good or not.

I have asked the following questions:

  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?

Also, I wanted to find out what indicators to investors use to make try and forecast a particular market.

I am convenced that I should have multiple exit stratagies so I need a way to find out what I need to know. I have decided that if I make the deal and end up with a house on my hands I will do a lease option. But what reseach do I need to be doing to come up with the numbers to show me my risks.

Thanks to anyone who shares any advice.


Does anyone out there do pre construction?

Your 2 years late pal!

Buying a pre-construction home with the thought of making a profit on it is like selling your home and buying lottery tickets with the money thinking it’s a good investment.


When Horton Homes, Toll Brothers, Centex and every other builder in the country is GIVING AWAY a Mercedes with the purchase of a new home that should tell you something. THINGS ARE SLOW.

The reason you haven’t received any replies to this post is no one in their right mind is INVESTING in pre-construction ANYTHING right now.

The whole concept of pre-construction works only in a market that is APPRECIATING. In that market prices rise monthly or annually and the people who get in early ride that price rise and by the time their home is finished the builder has raised prices (along with the market) and the investor can sell to another investor or buyer and pocket that price increase. Now read this part carefully.


Don’t do it. I have friends who have and they all have very large mortgages that their still paying and losing money by the bucket full.

This whole market and economy in my opinion are at a crisis point.

The U.S. auto industry is laying off THOUSANDS, these are great paying jobs. the effect this will have on the economy is HUGE. It’s not just guy’s who build cars. It’s furniture, appliances, real estate, ect.
Honda just advertised for 18 jobs in Engineering, Computers, and Human Services, for a plant down south… THEY RECEIVED 5000 APPLICATIONS…FOR 18 JOBS!!!

Sorry to be so negative but I hate seeing people buy into a marketing scam. And that is what pre-construction is nowadays.

I agree with Peter. Pre-construction is a win/win situation for the builder only. The builders bank will not start funding his project until he has contracts on a certain amount of units. So the builder starts the pre-construction sale so they can qualify for their funding. Once that funding is in place the builder could care less whether he ever sees you again. If you close on the property great; if you don’t close on the property that is great too because the builder gets to keep your deposit and gets to sell the property at its appreciated value (if there is any). Also, if the project does not make it to completion for any reason you are out of your deposit. There are many condo projects in Florida right now where the developers are walking away from the projects and leaving them in various stages of completion. Leaving everyone who bought in holding the bag. You are better off finding a lot and getting a construction loan to build an investment property for yourself that you plan to hold on to or sell off in a year or two.

Thanks guys for your responses. I know the market is in terrible shape, but the sky cant be falling everywhere; can it? But how can I evaluate what my chances are in any given market?

All right I’ll bite. Where are you???

He is currently somewhere in the Far East…I think he said Japan in another post.

Yes, thats right, Im in Japan. I know the dangers of doing this but Im only risking money that I can say good bye to easily, butI dont want do go about this foolishly. So, please, please, please, give me any of your thoughts and insights on this subject.


OK, We’ve tried to talk some sense into you and you still want to do pre-construction. So I’ll give you some other GREAT investment ideas…

  1. I’d buy ALL the sub-prime lender’s stock you can get your hands on.
  2. There’s great money to be made in pre-construction CONDO’S in FLA.
  3. I just talked to a REALTOR who assured me that this market is going to come all the way back and go even higher this spring. SO BUY BUY BUY!!
  4. Take all that money you don’t mind losing and send it right to me. I’ll invest it in my new pre-construction project for you. I’m selling pre-construction PORT-O-JOHN’S, $25,000 gets you the first one’s with the soft vinyl seats!
  5. I’m also starting my own hedge fund this spring, exclusively investing in CHINA. I have a friend there who has taken all the equity out of his house to invest in the stock market. He sells chickens in an open air market and say’s the market is definitely going higher. He reads the chicken droppings to pick his stocks! You can invest in that too, just send a cashier’s check and I’ll let you in, but hurry, only ONE spot left.
  6. I will hold a spot for you in my next “Pre-construction Millionaire’s Boot Camp” It’s a full 2 day long class and we’ll cover everything. Rush $6000 to me before all the spots are taken. (sells out every week)
  7. And Finally!!! Lottery, Lottery, Lottery!!!

Good luck, I know you can do it!

:biggrin Funny stuff man. Message well recieved. Thanks.

let’s assume the market is better, because one day it will be, and this may be educational for someone (like me)…

now, anyone care to answer the questions so when the market does turn to appreciating again (or in an appreciating market like Galveston, TX) we can be ahead of the game?

thanks for the original question and the answers so far…

Thanks bdub for keeping the post alive. Maybe. someone out there will share some information about what we people can do in an up market.

I would really like to know if anyone has any answers for my original questions. I know that someone out there is doing what I would like to do, so please,please,please help me out.