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Zhi Finance » What is pre-construction real estate investment?

What is pre-construction real estate investment?

The idea of pre-construction investing is actually a pretty smart approach when it comes to real estate, and many people have made millions of dollars in it. The theory is simple. Invest in real estate before it is in the planning stage. Those who will build them need capital and investors in order to get the buildings on the ground. By investing (in many cases, essentially buying the right to buy) in units, usually condominium units in high-demand areas, investors often have the option of investing for a few cents on the dollar in anticipation before ground is broken, and once construction is complete, the property can be re-sold at full market value, pocketing the difference between the original investment and the asking price.

This is a win-win situation for many builders or “owners” of the property in question, as the “pre-sale” units give the loan agent confidence in the viability of the project as a moneymaker, as many units are sold unseen. The benefit to the investor is that they are able to purchase before construction at a much lower price than after construction and are able to sell after construction at full market value (or higher than that in some areas of high real estate demand and low saturation).

This type of investment is not as attractive to some people as speculating in real estate. There is no beastly beauty to the renovation. However, there are a few things that should be kept in mind when making this type of deal.

First, no real estate business is guaranteed to make a profit, no matter what the glossy brochures say. With the current trends in real estate sales, this is usually not the best environment for pre-construction investments, although these things tend to change regularly and the market may re-emerge in the near future.

Second, networking is often the best way to get into this particular industry. There are all sorts of fly-by-night real estate investors. Those who last are those who network with other realtors and those who have a special interest and experience in pre-construction investing. In addition to joining local groups, it is possible to join online groups that deal specifically with this type of investing to get more information faster. The costs involved may be daunting at first, but they are far less than the cost of getting bogged down by not having even the most basic “insider” and “outsider” knowledge of pre-construction real estate investing.

Third, develop a close relationship with a real estate broker who specializes in this particular type of real estate investment. This may prove to be the most beneficial thing you ever do to ensure future success. By building the right relationship with the right real estate agent, you can get information about your new property before it enters the public domain. This puts you in a rare and excellent position to outperform the competition. It gives you a better chance of getting the bottom dollar, which is often missed by waiting too long.

Fourth, be prepared to hold the property for a period of time if you need to. The problem with pre-construction investing is that there is no guarantee that you will be able to “close the deal” when the time comes. Even if you have a buyer who is willing and eager to make a purchase, things will come up. In other words, there are times when you need to hold the property for a short period of time and other times as a long term investment. In the case of a long term hold, some options include renting the property to vacationers if it is in a high demand tourist area. You can use your real estate agent to help with this. This can allow the property to generate some income before it is sold. Others decide to use the property as a personal vacation home for themselves, friends and family. Finally, it is important to note that the property has a “Plan B” if the deal falls through and you have to pay the monthly note.

Pre-construction real estate investing may not have the “name appeal” of other types of investments, but it does offer a viable investment with the potential for great profits. When it comes to investing, the name of the game is profit, so keep that in mind when considering your investment options. This is a form of investment that requires (in most cases) minimal upfront capital.