subject: Pros And Cons Of Pre-construction Real Estate Investments [print this page] If you love extreme activities and sports and want to get involved with real estate, consider getting involved with pre-construction real estate. Profits in the pre-construction business are very high but the risks that are involved are high also. The maximum highs and lows in the real estate business are often seen under the umbrella for pre-construction profits. Many well-known real estate investment names have made their fortune via speculation as well as pre-construction sales.
Before you go any further with this idea... there is something you need to remember about this little real estate venture. Your profits in this area can be quite high; yet, so are the risks. This is tentative real estate and when the bottom falls out and the bubble bursts, people who have invested lots of time and money into it can lose a lot. It's always best to err on the side of caution; however, if you're a gambler, it's a risk you may want to take.
What Is Pre-Construction Real Estate?
Many people don't understand what it means by pre-construction real estate. It's understandable that it this phrase is confusing; after all, it can have several interpretations.
The first interpretation is pretty obvious: you're purchasing real estate before the construction of the property is done. When the real estate market is sizzling, you'll want to buy your property before the project gets underway especially if you're looking for low prices that will give you the high payoff down the road.
After you've made the buy, you can look for potential buyers for your property. Real estate markets in the areas of Las Vegas or beachfront retirement property in Florida tend to change hands several times before a unit has been complete. Each buyer will have something from the purchase; usually the earliest investors will have the largest purchase piece going home with them.
Why does this happen? Contractors will try to get financial support for these buildings; in order to do this, they must have several of them sold so the bank will determine the market is adequate enough to give them the money needed to get the property built. For that reason, the investors will purchase these units for very little money. After all, the unit hasn't been built or even approved for construction. These investors are buying an idea for property... not the actual built property. As the construction nears completion, the property value will increase drastically (especially for property in high demand areas). For those investors who managed to hold on, the profits are well worth it.
The Risks Behind Pre-Construction Real Estate Investing
There are many risks that go along with this kind of investing; so much can go wrong with a project like this. One problem includes housing demands being met before construction is through on the property. This is an ongoing problem. More problems that can hit this kind of investment are an economic crisis, business closings, recessions and more. When this happens, anyone who has a piece into the property can be left wondering what to do next and losing their money, too. They may even lose the investment entirely. Projects such as these tend to take lots of time to get done; another big reason they are so risky. Anticipating what the economy will be can be hard for a project like this.
However, if you are able to see it through to the end, investors tend to make a return of greater than 100 percent; a big reason as to why pre-construction real estate investing is a popular area... no matter what the risks are.
by: Lou Milard
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