ATTENTION INVESTORS!!
Preconstruction real estate is here and has a great opportunity for you to make some serious money! Even when the market is down and properties aren’t selling, the opportunity stands.

You heard me right. Money CAN be made using preconstruction real estate even when real estate sales are down at the current moment. How is this possible you ask? I am glad you asked that question!

Preconstruction real estate is sort of like swing trading the stock market. You buy when the market is on a downtrend, develop it and sell on the uptrend, preferably at the peak of the upswing.

What is preconstruction real estate investing?
Investing in preconstruction properties carries low levels of risk and high levels of rewards.  Preconstruction real estate investing isn't the next big up and coming thing; it is currently THE big thing. Why is this? Because it maximizes the investor’s profit with locked in, below market terms regardless of economic circumstances, provides protection for your cash in a third-party account and has established risk levels from the start. Minimal risks with no surprises make it hard to pass on potentially unlimited returns on investment.

Basically, here is how it works. Investors purchase interests in a piece of undeveloped property. A developer is involved to build that property into a cash-generating asset. This is usually an individual residential unit but business units can be part of the equation as well.
After the property is developed, the units may be sold and the investor stands to rake in the proceeds of the sale. This is the return on investment (ROI) that investors look forward to. Numbers have been known to be in the area of 50% and upwards! Put into simple terms, for every $1 you invest, you stand to make $1.50 in return. On an investment of $20,000 that means you make a net ROI of $15000. More in some cases!

Earlier we mentioned that this is like swing trading stocks. The correlation is that when property sales are down, it takes less of an outlay to get in on the ground floor of a great opportunity. This parlays into an even greater ROI for the investors and can actually go above 100% in some cases.

To take advantage of a down market, you need to watch trends, look for properties that will be in high demand when construction is complete. As the real estate market takes the downswing, which is when you buy. On a typical downturn of the market, investments can be anywhere from 15% to 30% lower than when the market is up. Chances are that when you invest at the downturn, by the time the property is fully developed and ready for sale, the market will be in an uptrend. Hopefully, if you are in sync with your developer, you can hit that peak just right and make a lot of money in the process.
Developers like this because they get their investment back right away. It’s the pre-construction investors who wait for sales to complete before sharing in the proceeds.

Let’s look at an example.

A property is being developed in an area that typically sells a similar FINISHED unit for $300,000. As a preconstruction discount, you are initially able to purchase a unit for $175,000. Since the market is currently in a downtrend and nobody is buying at the moment, the developer will be in a bind to sell units. The best case for a developer is to have all the units sold before construction begins. This is where you can use the market trend to your advantage. If you are a savvy negotiator, you can get the preconstruction price down another 15% to 30%. We’ll use 20% for this example making your purchase price now $140,000.

Of course a down payment is in order, so IF you decide to enter into a binding contract you will need to come up with an outlay of anywhere from $1000 to as much as 20% of the sell price. This is held in escrow and cannot be touched by the developer until the construction is completed. That is unless your contract says differently.

NOTE: Upon completion of the development, the remainder is due to the developer so you need to be sure you have the means to pay that responsibility or add a clause to the contract to pay the rest after you sell the finished unit.

At the time of completion, the market has taken a slight upswing. We’ll say the uptrend was 10%. Take that upswing into consideration since sell prices normally rise after a downtrend. Your asking price can now reflect that rise at $330,000. Let’s say you sell the unit at $330,000 and made a down payment of $25,000. You walk away with approximately $215,000. Figured like this:

$330,000{sell price}-$115,000{purchase price of $140,000 less down payment of $25,000} =$215,000 profit.

Now you have paid the developer the remainder of his selling price less the down payment. The rest is clear profit in your pocket. All within a two-year time span.

This is not hard to do and these numbers may be a little high, but they get the point across. By watching the market trends and using the “buy low, sell high” mentality, you can earn a lot of money from investing in preconstruction property and re-selling on completion.

One thing to be aware of is the growth of unprepared, untrustworthy developers. Many have caught on to the “preconstruction” buzz and use the word for every phase of the project. Be sure you are on the actual preconstruction phase.  Some contracts limit the sell price you can ask for, require you to keep the property for “x” amount of years before a sale is allowed, etc…  Read the fine print before entering into any binding contracts.