4 Things To Consider When Investing In Pre-Construction

As a real estate investor, pre-construction buildings are a great thing to have in your portfolio, especially when you’re new to the game. One of the best aspects of these deals is that it keeps your hands free to take part in other investment opportunities. Like with any investment opportunity there a number of pitfalls that buyers should be wary of, especially if it’s their first time. Here are four major things to take into consideration when you’re investing into pre-construction properties.?

1.) Location, location, location

The location of a project is going to determine so much in terms of the type of deal you’ll get, and how valuable the property is likely to be for you. What makes for a good location? The best way to determine that is based primarily on transit. If you look back over the last two hundred years of the world’s real estate market, the rentability of condos and homes under a 500 metre radius around transit are the highest.

Transit is a major factor in determining a good location, but there are a few other things to take into consideration as well. Equally important is finding a project in an area with a master plan for its community. If a gentrification plan is in place for the area, you know you're going to have commercial? and retail space nearby. You're essentially creating a city within a city so that people can live, work, and play within the same area. On the chance that you aren’t able to find a project with immediate access to transit, it’s alright because everything that future tenants need is within that little community that’s being built.

2.) Take Note of the Developer’s History

A developer can cancel a project at any time, for a variety of reasons. While there might not be anything you can do to stop that, working with a developer that knows what they’re doing will lower the chances of it happening. You don't want to be the guinea pig for any type of developer who's never led a project like this before. They might not fully understand how to get certain permits, or how to manage construction finances. In the case that a project is canceled, you fortunately won’t lose the money you invested, but it is a waste of your time.?

When choosing a project, you want to work with a developer who has a great reputation.Thankfully, finding out a developer’s reputation isn’t nearly as difficult to do as it might sound. A quick search on the internet will usually tell you if the builder has built and completed other buildings in the past, and what they were. In a lot of cases, people are pretty vocal online about their experiences with developers. With a bit of research, you should be able to determine for yourself if a developer is worth taking a chance on, or not.

3.) Move Fast, Be Patient

Everyone’s circumstances are going to be different and you always keep those in mind, but as an investor, buying during the late stage of the development process is almost always a bad idea. As development goes on, values continue to go up thanks to builders themselves forcing the appreciation. Buying in first access can save you between eighty to one hundred thousand dollars.

The good news is that there’s always another project. If for whatever reason, you can’t get first access to a pre-construction project, you can always wait for another great project where you can be the one of the first to jump on board at a great price. Don't let the developer control how you invest.

4.) Have an Exit Strategy

No matter who you are, or how successful you’ve been up until now, it’s always smart to have an exit strategy.When it comes to pre-construction, that exit plan comes in the form of a right to assign clause. This essentially puts it in writing that you have the ability to sell your agreement of purchase and sale to another purchaser, that purchaser being an end user or an investor. It’s important to remember that when you’re investing in pre-construction builds, you’re buying something today for something that's going to be built out in three to three and a half years down the road. Life happens, and you might run into financial hardship. Or even just a change of heart about investing. Without a right to assign, you're locked into this contract. You won’t make a big profit off your sale, but it is one of the best parachute security blankets that exists for investors.

With so many possible avenues to take, investing in pre-construction builds is just one of them. It takes time, but it won’t require as much time as other investment methods while still being just as lucrative. So long as you’re willing to do a little research, you’ll be able to find great success in pre-construction.