I read all posts on this forum related to pre-construction investing. I have not found any example of a successful purchase so I’ll write my own:
In November 2005, Claudia and I traveled to Costa Rica. We stopped at Tamarindo beach and realized the real estate was booming there (+ 20% appreciation a year). After meeting all real estate agents, we decided to buy a pre-construction condo in the Villa Verde II residence. The selling price was $114,000. A down payment of 10% was required ($11,400). Due to delays, to this day, the developer still has not broken ground, but it continued to increase in value. The developer is now selling the unit at $150,000… I sold my option for $32,400, creating cash on cash return of 184% in a year! Time involved was around a week as it was my first deal.
What is the interest rate for the 1 year CD today? I bet less…
This is why I believe pre-construction the easiest and most profitable way to invest in Real Estate.
Like any investment, do your own due diligence, I created a 4 pages check-list! Check the market condition (supply vs. demand, job and/or population growth…), the product, and the developer’s track of records, visit his previous projects, call the local Chamber of Commerce… Always define multiple exit strategies before you even buy…
Of course, never trust the person that is advertising the pre-construction deal; he is getting paid by the developer! Do you ask the barber if the haircut is nice?
Instead, simply ask if they would guarantee the initial money you invested, if they would personally invest in the deal with you.
So, some old school investors call it ‘speculation’ (I bet they have not tried it themselves or only heard stories of buyers only betting on appreciation to make money…). Like any other deals, you need to look at the fundamentals: Will the property cash flow? Can you find a buyer quickly if you offer terms? Who are your end buyers? What makes the product truly unique?
In the same guidelines, condo-conversion, condo hotel and timeshares are also new techniques to invest in real estate. Is anyone willing to share some inputs on those?
For those looking to tour a city with an expert, ask yourself what money will be left for you to invest after paying them?