So what is Investment Prior to Construction? The pre-construction investment is not for everyone. If you have the heart and soul of a Las Vegas gamer, or you have nerves of steel and the possibility of losing a large amount of money doesn’t hurt you badly, then the pre-construction investment may be your cup of tea.
Pre-construction earnings are often among the highest in the industry. At the same time, so are the risks involved. The biggest ups and downs that can be found in the real estate investment arena are under the umbrella of pre-construction earnings and many of the big names we know so well in the real estate investment arena have made much of their fortunes. through speculation and pre-construction sales.
High risk can mean high profits … or high losses
Before continuing, I have to inform you about some investment dangers if you consider pre-construction investment. While the profit potential in this particular corner of the real estate market is unconventional, the risks are also plentiful. This is speculative real estate at its best and, as we have all learned in the past, when the bubble bursts in a specific market, those who invest the most are those who often lose the most.
The greater the risk, the greater the reward, but it also goes the other way. The greater the risk, the greater the loss that can occur. Can you agree to lose all your money on a pre-construction investment?
What is a pre-construction investment?
What is a pre-construction investment? As for pre-construction real estate, there are some interpretations. The first is also the most obvious. You are purchasing real estate at some point before construction is complete. In popular markets like Las Vegas, you will often need to purchase the units before project construction begins to get the lowest price for your property investment and the greatest potential benefit. Once you have purchased the unit or units you plan to sell, start looking for buyers.
In flaming markets like some Las Vegas suburbs and large retirement and vacation cities along the Florida and Mexican coast, the same property isn’t exactly unusual for a property to change hands and have multiple owners before the unit complete. Each will take something home from the table for their efforts with those who enter earlier and often take the largest piece of the cake home.
How a pre-construction investor makes money
You may be wondering why this is happening and the answer really is simple. When contractors try to raise funds for their buildings at these large complexes, they often need to have a certain percentage of the “pre-sold” units to convince the banks that there is an adequate market and to get some of the revenue that is necessary to start the company, so to speak. Therefore, real estate investors buy these units at low prices because they are essentially paying for the idea of the unit (which at the moment has not been built and in many cases not yet approved to be built) instead of a brick and mortar property.
As the project nears completion, particularly in markets where real estate is in high demand, the value of the property increases dramatically and ends in ridiculous profits for those who have managed to survive.
However, the risks are great. There are a number of things that can go wrong with a project, like this one, the least of which is that the demand for housing will be met before the unit is actually built.
This has happened and continues to happen. Also, recessions, business closings, collapsing economies, and surrounding tragedies can happen before the property is completed, leaving everyone who has invested heavily in the project with a little bit of the bag and losing your earnings and possibly your investment. These projects typically take a long time to complete, making the risks much higher and anticipating these events a little more difficult to plan ahead.
However, if you can make it, many investors see a return on their investment of more than one hundred per cent, making it a popular type of investment among many despite the fairly large risks involved.