Preconstruction Investment
How to Protect Your Preconstruction Investment in a Development Area
By Buyincomeproperty.com
Nov 6, 2005, 00:54

Preconstruction investments in areas currently under development are a hot topic with many real estate investors and developers. But before you write your check to get onboard, there are some fairly easy steps you can take to be sure that both you and your preconstruction investment dollars are as secure as possible.

Start by looking carefully at the local market. You may be hearing about lots of development and the number of houses still in preconstruction stages. While it’s probably bit a scary to be the first to plop down the money for a preconstruction investment in a planned subdivision, being the nine hundredth may be even worse.

A healthy real estate market is one that is not flooded with a particular kind of available property – including homes in preconstruction phases. Even an area with a housing shortage can become flooded. Don’t allow yourself to get caught up in a fever that’s taken the local real estate market by storm. Preconstruction investments are generally profitable – to a point. Past that point, you may be faced with a serious overload of the market in which you can’t get a return on your preconstruction investment.

If there are a other preconstruction investors with homes on the market, take a look at average sale times, and at what’s selling best. You may find that $200,000 homes are selling faster than $100,000, or that rock exterior seems to be in high demand. It takes a bit of research but this is one of the strongest points of preconstruction investments – you have the opportunity to build whatever meets the demands of the market. There’s no need to just “work with what you have” because you can build what works best for your preconstruction investment.

If your preconstruction investment is part of an overall development, look carefully at the developer. Has there been a history of problems? Missed deadlines? Issues with local ordinances and building codes? All should be red flags about your involvement. It might not be enough that you should decide against participation, but it may be enough to remind you that you need to stay informed about progress.

For this reason, be careful about your contractual relationship with the developer. Try to not allow yourself to be maneuvered into a position where you have no say about the development, especially if you have made several preconstruction investments in the development area. Ask if there’s a contingency plan for the area – what will happen if the developer can’t finish his part of the project. Remember the developer’s responsibilities will likely include such details as running water and sewer lines, laying and paving streets and arranging for utilities. Having your beautiful home completed in the middle of a field with no streets (or streets that don’t meet city requirements) could make your preconstruction investment worth very little.

There’s no doubt that preconstruction investments are a hot topic for reason – they represent a good investment opportunity. It’s up to you to make the most of the opportunity while protecting your preconstruction investment dollar.