Preconstruction Deals...

In Ga., a new community 115 homes of $600k + are being built in summer of 2006. I have a good feeling that these homes will sell quick b/c of location, builder reputation, and quality of house. I would like to see if I can get a house and either assign it /close and hold for a couple of months and then sell. I really don’t know this area of preconstruction too well. any advice on what to look for?


First you need to find out if the builder will allow it to be assigned. Many will not since they do not want you competing with them on selling homes. Also since it maybe a community, many are requiring a 1 yr hold period with no rental or leasing allowed. This way they keep investors out and can control the pricing better…

yrush, they are allowing investors and the contracts are assignable. Will i incurr any costs in the processof having the house built?


is the home a spec home (they build with their money and you close on the loan when its completed) or (most likely) a construction to perm loan where they have you secure a loan and while its being built all your responsible for is the interest payments till the home is completed and the CO is issued.

Now if its a construction loan, see if the builder is rolling the est. interest only mortgage payments into the loan and they will be paying that so you do not have to. (just remember if they are, they est the interest and sometimes they do not take enough out so then you become responsible for payments after the reserve is gone.

Generally if the contract is assignable they do not have a construction loan though b/c of the bank. Check with the builder on the consquences and procedures on the assignability of the contract before the home is completed. SOme will want a percentage of the sale still. Also you will be responsible for the home loan in the event the person you assign to can not close. many builders will not give you back your deposit till the home is closed for protection so you would simply collect your assignment fee from the new buyer and wait for your deposit…

I was just in another area of the forum looking for people who do preconstruction.

The first thing that comes to my mind is, are $600k homes the norm for that area? Do homes at that price range sell fast? Seems high for GA to me but then I’m in California so my sense of numbers is a bit screwy! :o

One of the most important things to me if going into a precon deal is to know that I will have a LARGE pool of potential buyers (or investors if assigning) who will be ready to take the property off my hands. This means staying in/around a price that everyone can afford. If I’m at the very high end of the market, that might be harder to come by.


Jonathan, it is near a country club WHERE PRICES OF HOMES RANGE FROM 800K-3.2M. I do agree that it may be hard to find buyers for a 600k house. This is my first time doing it. At this time they are asking for $2500 refundable to be a the list to choose lots. I think I am going to send the check (since it is refundable) and work out the details meanwhile. How would I go about finding a pool of investors? I was thinking of holding onto it for 3 months after it was built and then sell. Any input?


Its nice to have your exit stragtegy before going in, but you need to find out the terms of the investment and financing for prepayment penalties. many want a 4 month to 1 yr holding period on preconstruction or the fee can kill the profits…

600K is high but if the area supports it, then go for it…You can always refi the home after completion as well to carry it…

…You can always refi the home after completion as well to carry it…

yrush, so i can refinance as soon as the home is completed so i can hold for 6 mos. +.? DOES THAT MEAN IF I DON’T HAVE BUYERS AT THE TIME, I WOULD NOT HAVE TO PAY FOR THE MORTGAGE OUT OF POCKET?sorry, it may be a stupid question but, i’m learning.


Beware of thinking you can refi the home easily immediately upon closing. Since you have not OWNED it yet, you will have no seasoning on the loan, and a no-season refi is difficult (not impossible) to get, and can be very very expensive if you can even get one.

If you close on a loan, you will have to make the payments, period. The reason some people will refi immediately is so they can pull the cash out of the deal, which can then PAY the mortgage for X months. But even though the money to pay it came out of the loan, YOU do still have to pay for it. The risk would be that if 6 months or 1 year later or whenever the money from the refi runs out, you don’t have abuyer in site… you could be in a world of hurt.

But it can be a very feasible strategy if handled correctly!