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Last Updated: May 14th, 2012 - 22:24:01 |
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Through our website the most common question that we receive is “How do I get rapidly started in preconstruction investing”. Realistically, you only need to take three steps on your path from being a “beginner” preconstruction investor to one that is extremely savvy.
MECHANICS OF PRECONSTRUCTION INVESTING
Before you even begin investing, you need a working knowledge of exactly what is meant by “preconstruction” investing, why has preconstruction investing generated returns in excess of 100% per year for many investors, what is the terminology used in preconstruction real estate investing, etc. The good news is this is your easiest step to take.
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As an example, in this stage you will learn terms like reservation, hard contract, assignment of contract, letter of credit, to name a few. Even if you are new to investing, don’t let that intimidate you. Whenever I teach a class on this topic, it only takes about 30 to 60 minutes to get everybody up to speed on this.
So how do you learn the mechanics of being a preconstruction real estate investor? My suggestion is to take advantage of the free resources available on the internet. For example, at GetPreConstructionDeals.com we give a way a 30-page ebook about preconstruction investing that will walk you through this basic terminology and will give you some real world preconstruction real estate project examples. Also, if you conduct an internet search on “preconstruction” “preconstruction investing” “preconstruction condo”, etc., you will find tons of websites with this type of information readily available. Give yourself an evening or two and you should be a master. Unfortunately, over 80% of new investors stop after Step 1 and immediately want to look for “deals”. In my opinion, this is a big mistake because they are lacking what separates the beginning investor from the street-seasoned preconstruction investor; the methodology to RAPIDLY pick “smart investments”
FINDING PRECONSTRUCTION PROJECTS
If you did an internet search in Step 1 above, did you notice how many real estate web sites you found with preconstruction investments on them? If not, simply put in the term “Miami preconstruction” in any internet search engine and you will see the number of results. Here is a test for you. From the internet searches done above, can you rapidly look at those projects and choose which ones might be worthy of further investigation? Most people become overwhelmed at this point whereas most savvy investors could sort through most of these in a matter of minutes.
Over the years, in both the stock and the real estate markets, I have had the opportunity to work with some truly outstanding investors and I have also seen many, many beginners. When a beginner looks at a preconstruction investment, they ask the real estate person “How much will I likely make on this investment and should I buy it?” When an experienced investor looks at the same investment, they first ask THEMSELVES “Is this investment really low risk and if so, how much money is really at risk?” Then they ask THEMSELVES “How much money am I likely to make if this investment works?” In their mind, they are trying to determine the amount of reward, relative to the risk. They know that the person marketing this project is UNLIKELY to think this way but they know how to ask the right questions to quickly decide if this project has an acceptable reward-to-risk ratio for THEMSELVES.
If you are reasonably new to investing, or have always counted on others to make investment decisions for you, how do you perform Step 2? Simple. You must learn how a savvy investor thinks, how they calculate risk, what back-up plans they have in place in case the investment does not work, how they calculate reward, etc. None of this is rocket science or even difficult to do. If you’re new to preconstruction investing and are trying to do all this on your own, it can be a daunting task, however. I find that truly savvy investors are always talking to others, getting their opinions, learning anything they can to make THEIR OWN decision. They know that every little tidbit they can learn can literally mean several 10’s of thousands of dollars into their own pockets.
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Practically, you need somebody to mentor you that has “been to the dance” many times before. If you know somebody in that category, buy them lunch, dinner, movie tickets, whatever and ask if they would look over your shoulder. If you know several people in this category, better yet. Your lunch bills will be pricey but your education gained will be priceless.
In addition, learning to think like a savvy preconstruction investor is the reason that we created our original home study course as well as our more complete live teleseminar course. Many people don’t have someone to turn to other than maybe the real estate person bringing them the project. I personally find that most real estate agents/brokers are fantastic resources for information, however most do not analyze the investment like I would. If you ever find yourself asking your agent or salesperson if “they really think you should buy this,” then that is probably a good indication that you are ill prepared.
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No matter how you accomplish it, learn to think like a savvy investor for YOURSELF; it just is not that hard to do.
GROWING YOUR PORTFOLIO
Once you think like a pro in Step 2, you will have just created a problem for yourself: you will probably find that few preconstruction projects will fit your objectives. New investors tend to think this is like the stock market….. When they are ready to invest, you should just be able to plunk down your money and move forward. Realistically, in the stock market and the preconstruction market, TRUE OPPORTUNITIES appear when they are good and ready. When that occurs, and only at that time, then the savvy investor will pounce with lightning speed. Remember, for many people, a couple of good investments PER YEAR is plenty and may then more investment returns than they ever dreamed possible.
While this may be hard to imagine right now, after Step 2 you should have a clear understanding of the type of investments that you would consider. As an example, suppose you end up concluding that you really like condo/town home projects, not on the beach, and in the southeast. In addition, you want these investments in some emerging markets but not necessarily those that have been explosive for a long time. Great! Now start getting on lists of brokers/developers that bring out those projects. If you can work with a group of like minded people, all the better because you can share the workload and also have additional clout because of a higher potential buying power than just one individual.
I will caution you however that when you think like a savvy investor, you are going to want a lot more information than is typically provided by these types of sources. You will want a true assessment of the local market (other than “boy has this been hot”), you will want a true assessment of the amount of similar projects that have been or are going to be offered, and you are going to want to know a lot about who is buying these projects and why.
Because we like a lot of detail and because we know we have to move very quickly for good investments, we have always found it better to operate as a group, rather than one lone person trying to sort this out after work. In addition, we have found that by pooling together the buying power of a group we can get much better access to really good investments.
It is for these reasons that we at GetPreConstructionDeals.com have created our “Mastermind Group.” I hope this has given you an understanding of the 3 steps needed to become a true preconstruction investor. Some people will look at this and say that it is too hard, or too time consuming. Yes it will take some time and some effort. The question that I always ask them is then “How many hours in your regular job would it take you to make some of the large $75,000+ returns that some preconstruction investors are making?”
Dr. Chris Anderson is a co-founder of http://www.GetPreconstructionDeals.com and is referenced in many venues including the New York Times and USA Today. Download his free, 30+ page preconstruction investing ebook today at Get Preconstruction e-Book
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