How to Profit From Preconstruction Crystal Lake IL

Investing in preconstruction in the current real estate market can be both highly risky and highly profitable. By spending time to research and understand the market, selecting a reputable builder — and having the willingness to stay the course — investors can reap significant financial rewards from buying preconstruction. See the following article from Pathfinder Internationa l to learn more about investing in preconstruction.



What is preconstruction?

Buying preconstruction, or off-plan, is where you buy into a development before it has been constructed. You are relying on a set of architectural plans. Frequently, developers will offer substantial discounts to buy off-plan. The best preconstruction projects will sell out before a shovel goes in the ground. Often the best units go to “insiders.”

Why would a developer do this?

Developers need investor funds to stay in business. That’s a strong incentive to create simple and profitable investor terms. Also, bank finance for construction costs will typically be dependent on a certain level of presales. The developer will want to hit that number as soon as possible. By shortening the length of the project, he can increase his return on investment (ROI). This timing issue creates a symbiotic relationship between developers and investors. The developer will also want to share some of the risk by selling preconstruction. He knows he is giving a good deal based on today’s prices but who knows what the market could be like when the units are delivered in two years time.

If the developer has a good track record, banks practically compete with each other to lend him the money for a deal like this (under normal credit market circumstances). With presales in place, the bank’s risk is minimized. By simplifying the deal, the developer minimizes his administration costs while securing his construction funds at a competitive rate.

Who is preconstruction for?

Buying off-plan makes more sense for the investor than for someone buying for personal use. For the investor, the unit doesn’t have to meet your personal taste, and you probably don’t mind that it will take up to a few years before you take possession of your unit, as long as the market is seeing appreciation.

Buying preconstruction you need to make sure…

It should, however, be a property that a large portion of the general public wouldn’t mind owning or renting. You are buying the unit to eventually sell or rent to an end user, and you want to make sure the property will be attractive to that level of the market.

The end user may be a long-term renter, a first-time homebuyer, a short-term vacationer, or even another investor. That will depend on where and what you are buying. Analyze who the end user will be before you put your money down, as you will want to make sure there will be a big enough market to sell your property into.

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