The High-Stakes World of Pre-Construction Investing
A high-risk, high-reward strategy for the adventurous investor.
Are You the Ideal Candidate?
If you have the heart and soul of a gambler or love extreme sports and activities such as skydiving or bungee jumping then you may be the ideal candidate for pre-construction real estate investing.
Pre-construction real estate investing profits are often among the highest in the industry. At the same time so are the risks. Many big names have made their fortunes through this exact type of speculation.
A Word of Caution
While the potential for profits is unconventionally high, the risks are also abundant. This is speculative real estate at its very best. When a market bubble bursts, those with the most invested often lose the most.
What is Pre-Construction?
Simply put, you are buying real estate before construction is complete. In hot markets, this often means purchasing units before the ground has even been broken. This gets you the lowest possible price.
In high-demand areas (like Las Vegas or Florida), it's not uncommon for a property to change hands multiple times before it's even built. Those who get in earliest often take the largest piece of the pie.
Why Do These Opportunities Exist?
The answer is simple: funding. Contractors need to "pre-sell" a certain percentage of units to convince banks there's a market and to secure the revenue needed to start the project.
Investors are essentially paying for the *idea* of a unit, not a brick-and-mortar property. As the project nears completion, and if demand remains high, the value rises dramatically, leading to ridiculous profits.
The Risks, However, Are Many
Any number of things can go wrong. Demand for housing could be met before the unit is built. Recessions, business closings, or local tragedies can collapse the economy before the property is complete.
These projects take a great deal of time, which makes the risks greater and harder to predict. You could lose your profits and, quite possibly, your entire investment.
The Potential Payoff
If you can manage to make it through, many investors see more than a one hundred percent return on their investment, making it a popular choice despite the rather large risks involved.