Investment Gains in Preconstruction
ITIPress.org - Leo Miller*
So, have you made money in real estate yet? With properties here in south
Florida appreciating annually at double digit rates, it's been a
no-brainer for investors. Most thinking people have abandoned their anemic
CDs and roller coaster stocks to jump on the real estate investment train
that's been running full speed ahead.
Many of the people I talk with both at properties and on my program ask
the same question "what is the best type of real estate investment?"
Actually, there's no best "type" of real estate investment only ones that
provide positive returns. If they're providing a return, you can certainly
be happy with that. I think the real question is "what's the easiest way
to make money in real estate?" I recommend what I like to call the lazy
investor's path to wealth. Preconstruction or condominium conversions. Why
not let the developer build your equity? Interest rates are low, the
demand for new condos is high and that combination makes preconstruction
and condo conversion investing a hot opportunity.
Let's start with price. You need to realize that when a developer plans a
new project, there's a lot of pressure. Developers are securing funds to
do the project and the financial backers want to see a number of
preconstruction reservations and interest before the project can have the
green flag. This creates an opportunity for the investors. The developer
needs these early pre-sales to gain credibility and help secure financing.
So, the developer provides early price incentives to buyers.
The preconstruction pricing will be lower than subsequent price points
once the project is underway. Usually the developer will ask for a 10%
deposit to hold the buyer's unit of choice. Furthermore, the developer
will set up scheduled price increases throughout construction. It
encourages investors to buy early because prices are going up and they can
benefit from that.
Investors want to get in on the increases, it generates more demand and
that's more appreciation on the investment.
Now, how do you make it work for you? You need to realize there are four
phases to preconstruction purchasing. First, you have the reservation
agreement. The project developer has preliminary floor plans, amenities
and pricing. You can reserve one or more units with an initial deposit of
10% of the purchase price. The deposit goes into an escrow account. It
stays there untouched until you decide to go forward with the purchase or
get your money back. You have no risk at this point.
Next, is the right of recision period. It's also as the time you review
the condo documents. The docs list the rules and regulations for the
condominium. This recision period lasts 15 days to decide whether to go
forward and purchase or get the deposit back.
After the recision period you will enter into the Contract for Sale. You
will make an additional deposit bringing the total up to 20%. This is
typical of most preconstruction projects. Some may require less. The
contract then becomes binding on both the buyer and seller. Construction
can take from six months to two years. The contract will have an
expiration date upon which you are entitled to a refund of any deposits if
the developer has not completed construction.
Usually what happens during the construction phase you'll see additional
price increases as the project nears completion. If the developer allows
it, you can assign the contract prior to closing. That means if you went
to contract for $400,000 and during construction prices go up to $450,000,
you can sell the contract to another buyer who will be the end user. You
made a $50,000 profit. Remember, you made a 20% deposit ($80,000) and you
realized a 60% on that $80,000 investment. On top of that, your money
wasn't in the volatile Stock Market it was secured by real estate.
If you decide not to assign the contract, you'll be expected to close when
the project is complete. So, once you have passed the recision period,
it's advisable that you secure your financing with a lender so you can be
ready to close. If you don't close, you'll lose your deposit. There really
isn't anything different from closing on new construction property. You'll
have closing costs, loan origination fees, condo association fees, etc.
However, by reserving your unit during preconstruction, you are now in
position to reap the benefits. Again, if you secured a unit for $400,000
and it appraises eighteen months later for $500,000** at closing, the lender
will loan 80% of the value or in this example, $400,000. You owe $320,000
(400-80 deposit), plus your closing costs, say around $7,000. Now, you've
earned $73,000 on your $80,000 initial investment. That's just over a 90%
return. Again, the investment was in real estate, an old fashioned
tangible asset.
Now that you know, treat yourself to the returns savvy investors have been
enjoying for years. Dust off that CD, equity line or money market account
and take advantage of the preconstruction projects. Real estate
appreciation will continue with you or without you. It's more profitable
to be with it.
*(Leo Miller is a licensed real estate agent/investor and host of the ReMax
Real Estate Radio Show)
**Please note that if it appraises at $500,000, it doesn't necessarily
mean that it can be sold for that amount in the free market. .
The Remax radio show is hosted by Leo Miller, a 15 year veteran of talk
radio and Carolina Laverde, a business investor from Colombia. He has been
an active real estate agent/investor in south Florida for the past 5
years. Carolina Laverde has been analyzing real estate trends here in
south Florida for the past ten years.
Each week they profile the investment opportunities in preconstruction and
condo conversions.
By interviewing developers about upcoming projects, the show provides a
head start to investors by allowing them to hear before the rest of the
public. Listeners can register their names on the Platinum List and
receive information on these projects.
The real estate market is moving quickly and this program invites to run
with them. www.realestateradio.cc 1 800 530 4601
Send your questions to
Info@TheInvestor.tv
Others links:
www.PreconstructionPrograms.com
"Accept that all of us can be hurt,
that all of us can and surely will at times fail. I think we should follow
a simple rule: If we can take the worst, take the risk." – Dr. Joyce
Brothers
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