What is Preconstruction Real Estate Investing?

Investing in preconstruction is a very sensitive strategy that I have researched for years.  I have seen developer concepts such as 2 year leaseback paid at closing.  Or I have seen offers with a purchase you get 1 full year of rental payments.  To me this makes no sense.  From looking at it from an investment perspective, I look at a few things.  First and foremost, "What is the rental demand?"
Doesn't it seem like an oxy moron for a developer to offer massive incentives if he has marketing companies promote it as a "Great Investment"?  I have seen tons of these in the recent years and I can tell you that over 75% of the investors I have spoken to that have purchased similar property is WAY upside down or in foreclosures/short sale. 

That said, let's look at some ways to determine a good preconstruction opportunity for investment purposes.  First, what is so enticing about the area.  What is inbound and outbound migration looking like.  Are there amenities available to set your unit in an exclusive category above most of the units on the market?  In a positive real estate market, to gauge the inbound migration, you have to determine the employment availability.  Ask your local realtor to show you the median income of the area and also the median house price.  You should make a determination whether that area can sustain speculated appreciation.  Many people fell into this trap in SW Florida.  The area has so many natural amenities but the amount of investors surpassed the number of buyers.  Prices skyrocketed and the affordability was gone by 2005 which caused the market to crash when the credit crisis hit and refinances became difficult. 

Preconstruction can provide an investor for a phenomenal opportunity.  In most cases, you can tie up a condo for instance with a deposit and are not required to close on it until it is completed, typically a minimal of 18 months.  So you have 18 months to "season" the real estate and count on market appreciation.  Although this can be highly lucrative, it can also turn out in disaster if not done properly.

Contact us for more information and advice on real estate preconstruction investing.  We would be more than happy to share our experiences and provide you with any information you may find useful to assist in your decision.