My experience with pre construction investing...

General Real Estate Investing
1

Hello,

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?

Happy investing :slight_smile:

Christophe Attard

2

You did exactly what most people DON’T DO in pre-construction.
YOU SOLD!!! Nice job. Sounds like you really did your homework and it paid off.

Now let me recount the other side of the pre-construction story.

I have numerous friends who bought Florida Pre-construction condos.
The stories they told were very exciting. They had to literally CAMP OUT, in tents, at the builders sale office the night before the sale. They had lots of company, about 600 people. When they opened the doors they sold very unit in 2 hours. This was well documented in area newspapers during the boom.

I kept asking… When are you guys going to sell? The answer… We want to wait a year to get the tax savings. Now these people were sitting on $80,000 to $100,000 in potential profit but didn’t sell because they did not want to pay too much in taxes.

How did it turn out?? Everyone of them still owns their condo, they’ve lost the money they could have made because the market in Florida is so over built they can’t give them away. And to make matters worse they all have interest only loans and the rents down there are lousy because of so many people in the same boat.

One of them recently visited his unit and said there is not ONE single person living in any of the units in his phase.

You did great. But you got lucky too.

3

Luck has no place in my business plan.

4

No guys I always say not to talk to anybody about doing anything except the people who are doing it and making money on it. Your friends don’t like it because they didn’t make any money on it. They didn’t know what they were doing. Their advice is not credible. WelcomeToRealty’s is. He made $21k doing it. Anybody that is looking to do preconstruction deals in Costa Rica need to do just what WelcomeToRealty did and they at least have a chance to make money at it.

5

I still haven’t heard anybody making any money doing it in the USA.

6

Hello,

I completely agree. Some people will make money investing in pre construction and some people will lose money investing in pre construction, even when the investors invest in the same project at the same time. It all depends on their exit strategies, the timeframes and their ability to resist the down turns of the marlket.

Like any other real estate investments, you need to look at the fundamentals of a deal (supply vs. demand, job and population growth, location…) and define your exit strategies before you buy. I think most investors in Florida bought at the peak of the cycle when the market was already saturated. Their only exit strategy was to flip the contract at a higher price but they were all competing against other investors and in some cases, the developer himself (who always has deeper pockets and can afford to slash prices…).

The questions to ask when buying any real estate investment (remember, make money when you buy) remain the same:

  • Is it in a desirable location?
  • Will it cash flow?
  • Is the project truly unique?
  • Can I sell quickly if I need to?
  • Where am I in the cycle?
  • Who are my competitors when I’ll try to sell?
    etc…

Looking at the fundamentals yourself (not what the person marketing the project tells you) will prevent catastrophic financial situations as recently seen in market such as Miami, Las Vegas,…

Now, I am also negotiating short sales, lease options, subject to, installement land contracts, fix’n flip. These other deals just took in general more time to close but are a crucial piece for building a long-term portfolio.

See you,

7

I agree with you. You did your homework and you pulled the trigger. My point is this, and it applies to everything I have even seen. If you’re doing what EVERYONE else is doing when everyone else is doing it, it’s too late. These guy’s hit the top of the market they had a opportunity to get out and make money but they got GREEDY. The moral is don’t follow the crowd and have a plan.