I received an email the other day that talked about the money that can be made in preconstruction condos. It sounds good but I would like to get some of you guys opinions and knowlege on this type of real estate investing before I buy the course. Thanks.
why buy a course? It is probably the same as buying pre-con houses. Generally you get a nice equity boost. The builder sort of imagines a price the home might be worth that covers all costs and makes a profit. They then sell at that price. Also they normally go in “phases” and bump the price some each phase.
When everything is built, the real appraisal is normally higher than what you paid. Thus, buying in the pre-con phase is a way to make money.
Here is an example.
In Vegas there is a development that is pre-selling. In phase one Model X went for $220k. Now in phase four, it is going for $268k. If you were lucky and got to buy in phase one, you already made in theory 48k on your investment and nothing is done yet.
Developments do this to get buyers quickly and start recouping their costs. The last ones in pay a larger tag because the developer is breathing easy now. However, even those guys will see a little bump in equity when done.
As for condos, it is probably the same principle. I hate condos with a passion and will never buy one. Air space should be free
Normally you need to know about the development in advance and get on an interest list. Some do lotto.
Not sure why you would buy a course to be told to purchase pre-con condos. Who knows.
Hi evergreen - interesting concept. My question is: would you not then be competing with the builder when you start selling your homes?
My husband worked for a builder here in Houston during the early 80’s bubble. A young man cut a deal with the builder and bought houses in bulk at a 10% discount and then rented them out. But the agreement was he would only rent, and not sell, thereby competing with the builder. I might add that when the bubble burst, he was stuck with all those houses.
No. The developer is the one selling them. Keep in mind that I am in Vegas and things might work differently in some parts of the country.
Also, you normally would not be selling your home until after the developer had them all built and out. Be kind of pointless to try and sell because a buyer could just get one from the builder and customized too.
Plus you want to wait until your area is built out and sold so you can get the nice appraisal. I know out west, getting in on pre-construction homes can be a hassle at times. So many people.
We just completed 2 preconstuction deals phase 1 here in Tampa. We contracted on both back in Aug 04 for roughly $230K including lot. They were finished in April and we sold 1 for $285K less 2% comm to the buyers agent and we sold the other for $285 w/ no realtors The other bonus was that on the purchase of the home the builder was covering 5K in closing cost. We also brought in a realtor at the beginning that was willing to split his commision w/ us. Needless to say we did very well!
Additional note: Some builders are starting to limit the number of investers they sell to. You may have to do one at a time per builder if this is the case.
New member question here, don’t you have to be in a position to make the monthly mortgage payment while the rest of the development goes up or is there some way to defer the payment. Thank you.
You do have to have some money to put down. Depending on the builder, some are as low as $1000 and some our 5 or 10%. In most cases the builder will not require any payments until the house is complete and you close on the house. This usually takes about 6-10 months. During that period, if you are in an area that property value is increasing, you house that is under contract is increasing as well.
My suggestion is to talk to several builders in your area and ask if they work w/ investors, what their down payment is, if there are any payments that are required during build out, if they cover a portion of the closing cost, how long it will take to build. Compare square foot price w/ other comps. I always look for preconst pricing to be lower than current sq ft pricing. Hope that helps. Good luck!
So if I’m understanding this correctly, the down payment does not have to be in the form of cash, it can be a letter from the bank saying that you have the funding kind of like an insurance policy for the developer. Example I find a preconstruction home at 300k so I need to insure the builder I have the 60k to put up, I get a letter from my bank and give to the builder as good faith, but I actually don’t have to give them the money until closing, which I don’t want to to anyway I just want to flip. Would this be correct. Thanks for your help.
You have to give them the good faith before it is built. I deal in Maryland and this is one of the hottest markets in the country (MD VA DC)…builders will ask for 5% down but anything is negotiable. I can tell you from experience that you can get by with 5-10K. Furthermore if you buy in PUD the appreciations is stronger than a non-PUD property. 50-75k and more is not uncommon (appreciation value) in 6-9months. PUD is Plan Unit Development (new community that has shops restaurants, etc.)