I’ve been asking around and getting different opinions of investing at the “pre-construction” level as a newbie. I know lots of people that own real estate as an investment, but I am basically tenant shy, and heard about this. I do know more than I think the average person does, but wondered what anyone thought about doing this as my first investment.
I think that buying pre-construction in a declining market is financial suicide. The money is made in pre-construction in rapidly appreciating markets. Clearly, we are no longer in a rapidly appreciating market.
In my opinion, the money to be made at this point is in quick flips where the investor buys a property at a HUGH discount and then rapidly resells it OR with rentals (again bought at a hugh discount) which historically do well as the pool of homeowners shrinks (or stops rising) with rising interest rates. Adding to the upside of rentals is the fact that so many rentals were converted to condos during the recent RE boom. Some markets are already experiencing a shortage of rentals along with increasing rents. Unfortunately, that has not happened here in Ohio yet. Here in Ohio, the housing inventory has dramatically increased but prices are just starting to fall. We also have a TERRIBLE tenant pool and no increase in rental demand yet.
The bottom line is that you should become thoroughly educated before you invest in anything. While real estate is more secure than stocks, you can still lose a pile of money in real estate if you don’t know what you’re doing.
Good Luck,
Mike
I’m a little skeptical about that type of investing in this current market. It’s very speculative. Also, many of the pre-con deals that I come across seem to be completely driven by the builder. You use their financing their, title company, their management once the property is finished, and then their agents when you want to cash out. When I hear about deals like this, I start thinking I’m getting played. When someone tells me how much money they’re going to make for me, I’ve gotta figure something’s a little fishy. Do your due diligence.
I’ll echo that on being thoroughly educated before investing. But if you are from Corona, then you may want to speak to an agent the deals specifically with small investment property (2-4 units) in the San Bernadino area and definately look into getting a property manager for your first one. A few people I know that want to keep their units somewhat local are looking there as opposed to out of state. I could probably refer you someone if you are interested.
That being said, I know a few people in South LA and Orange Counties that have been doing precon as an alternative to investing in the area, which I can say most assuredly, is a waste of time. But that is a long discussion to be sure.
I have friends that own rentals in Moreno Valley, Rialto, and a few other places out that way and to be honest, toilets and tenants… stink! I guess it’s something I would like to stay away from, unless it’s short term. Also I’ve asked a mortgage broker friend about loans and while I can pull a loan on a duplex, many of the threeplexes and fourplexes require too much money down. Anyway there are a few things I’m exploring, but I figure doing a great deal of studying first will be involved, wherever I end up. Thank you though!
Risk with reward I guess. A quick look on the MLS out there shows that 10% down on a 3 would be in the same ballpark as the downs on some of the precon read up on. Anyway study up!
Wouldnt invest in preconstruction or any other real estate in a declining market. Being a loan agent I get a good feel for values in areas. Hear a lot of people in CA, FL telling me values that are way higher than the actual apprased value because they think were still getting 20% apprecitation. >:( On the other hand in the middle of the country, especiially TX, I hear just the opposite. appraisals come in hager than what they think…to me that shows certian areas are an the rise. :DThink there are preconstruction/re oppurtunities in some markets still. Nina
I get a pretty good idea about where the local market is going where I live just by talking to friends that buy property from time to time, but often it seems like the newspapers don’t have a good grasp on reality when they talk about appreciation. If it could be the same elsewhere, then how to get a good grasp on if things are going up or down where you don’t live?
Local Realtors & local loan agents would probably be able to give you a good grasp of the local conditions once you located an area. How do you find the area??..good question 
Nina
to be honest, toilets and tenants.. stink!
As I heard a guy say at my local real sestate investors club meeting. Real estate is easy, people are hard. Dealing with people be they contractors or tenants is difficult. But money is made in providing people with what they want. In order to get them what they want, you have to deal with them. My wife does not deal with tenants because she can’t stand them. I do that. She can, however, deal with contractors. She does a great job with them. You may want to partner with someone that is able to provide some additional cash and talents and also deal with the tenants.
Here in Texas investing in pre-construction is huge. You just have to negotiate a good cost to construct. One thing I read over and over again on this site is “you make your money when you buy the property, not when you sell it”. If you are buying at 75- 80% LTV before you ever break ground you should be happy. Especially if you are a buy and hold investor. Builder carries the warranty for two years,you have a 10 year foundation warranty, and your renters are thrilled because they have a new home. You can start marketing the property 60-90 out from completion of the project so when the time comes you have a renter ready to move and start making you money. I do this loan for investors all day everyday. Hope this helps.
Thank you, and the more I learn about this the more I realize it’s going to involve tenants and probably property management, as it takes more time most places to turn a profit and avoid taxes than say a few years back. One issue I’ve had that I’ve not really got a great answer on is getting closed sale information or “comps” and what markets are doing in areas near new construction. A few people have said “ask an agent”, but it seems like if that person knows I’m going to buy from a builder, why would they want to deal with me?
There are companies out there that will do what is CMA or a Consumer Market Analysis. It will give you all of the information on value without the cost of getting an actual appraisal. Call a local appraiser and ask them what they will charge.
not to be a ‘nit-picker’, but,
CMA = Comparative Market Analysis
Keith
I knew someone would catch me on that one. I just guessed and got busted.
…and you thought I was just another pretty face!
LOL
Keith
PS - there’s an Investing Glossary and a list of Investing Abbreviations in the left column!
thanks guys!