How to Profit from Pre-construction Investments Crystal Lake IL

Preconstructions can be highly profitable investments under the right conditions. Preconstruction with supply constraints, a large number of potential buyers, and an appreciating market are some of the factors that investors should consider to maximize returns. See the following article from Pathfinder International for more on this.


Does buying pre-construction make sense in 2010? Yes…and no. It depends on the market, the deal, and you. Find the right deal in the right market and returns can be 100%, 200%, or even more. How do you know if it's the “right deal?”  Follow my golden rules.

Buying pre-construction 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 pre-construction projects will sell out before a shovel goes in the ground. Often the best units go to “insiders.”

Developers do this as they 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 pre-sales. The developer will want to hit that number as soon as possible. The developer will also want to share some of the risk by selling pre-construction. 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?

Buying pre-construction 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.

When you buy a unit pre-construction, however, it should 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. Pay attention to how much similar supply is in the pipeline in the area.

You get a discounted price to compensate you for taking on some of the early development risk, but the real incentive to buy pre-construction comes from leverage. While the terms of the payments vary from project to project, no matter what the terms are, you are leveraging your returns to some degree. A typical deal will start with a small down payment…say, 5%...and work through various stag...

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