Whether it's a new condo building or housing estate going up in your area, you may have heard buzz about pre-construction sales or pre-construction purchasing opportunities. But, what does that mean? How does it work and why do buyers line up for viewings? For answers to these questions and more, keep reading.
What is pre-construction purchasing?
To pre-sell units, raise capital and finance the remainder of their projects, builders and developers often pre-sell a number of units at a discounted price – usually 10 to 15 percent lower than for what they intend to sell the units or houses once completed.
What's the advantage of pre-construction investing?
Whether you plan to purchase the home as a primary residence or as an investment property, this allows you to obtain the property for less than the prospective resale value.
What's stopping me from selling it right away for a small profit?
Most developers have restrictions in place that prevent buyers from selling their pre-purchased properties until either all or almost all the units have been sold. In addition, some developers put a time restriction on sales to prevent buyers from selling their units at less than the developer price and undercutting them.
Are their risks involved?
Yes – for example, if the real estate market is slow and the developer decides to lower the price of the units once they're completed, your unit's market value has effectively been decreased.
Also, buildings and developments aren't always completed on time, so prospective homeowners shouldn't bank on a unit or house being finished in 16 months just because a builder says so.
Do I have to start paying right away?
Most pre-sales require a down payment or deposit on the home and then no more payments until the house is actually completed. In the meantime, your down payment cash will be locked into that property. However, you'll have time to save money and later increase your down payment while simultaneously gaining equity in the property as it's built.
What about group or wholesale pre-construction investing?
Wholesale pre-construction investing works by taking a small amount of money from each member of a larger group of investors. Those funds are then used to buy a block of units or even just one pre-construction unit, with the expectation that it will later be sold at a profit.
In most cases, wholesale pre-construction investment firms are legitimate business, but you should always investigate a company and its representatives thoroughly before handing over your money.