May 19, 2024


Mad about real estate

Pre Construction Investment Real Estate Pros and Cons

Many people have been asking me “Mark, why would I buy a brand new pre construction investment condo when I can buy an older one and fix it up and sell it?” This is a good question. Some people do very well buying old fixer uppers and throwing in some new carpet and new paint and making a few bucks but this is defiantly not for serious investors. In this article I will go over the pros and cons of the “We Buy Ugly Houses” that has gained in popularity over the last few years with the help of some charismatic real estate “Gurus”.
Avoid the Hype

First let’s analyze exactly what these “Gurus” want you to do. They tell you that you don’t need ANY money and if you use their system they can make you a millionaire in just a few short months. If this was true I would have retired a billionaire a long time ago, the truth is the opportunities they talk about are VERY few and far between and you add in the factor that every major city has at least 15-20 people trying the same technique as you.
(They may even have the same $599 CD set!) And you’ll see the odds are stacked against you. Now these CDs are not all bad, they do educate many amateur investors. But just remember, these “Gurus” do exaggerate the market and do spread a lot of false hope to impressionable new comers. When you listen to the CD’s sets in your car always keep this little fact in the back of your head “They made it rich off selling the CD sets, not from selling real estate” Why would someone who made it rich from real estate want to start selling CDs? It’s like that age old quote says “Those who can’t do, teach”

Now let’s go over the pros and cons of real estate investing. Although I don’t believe there are many drawbacks in investing in pre construction real estate there are some points that scare people out of the market.

I think it will be easier just to bullet the points and explain. This way all the people looking for a quick answer can just browse to the points of Investment real estate – pros and cons.

Pros in Pre Construction Real Estate Investing

  • It’s the Easiest Form of Real Estate Investing – Investing in pre construction real estate is the easiest form of real estate investing, all you need to do is buy a property wait a few months for it to get into a higher phase of construction then sell it for a profit.

  • No Head Aches – Pre construction real estate doesn’t have nearly the number of problems/headaches as traditional fixer upper real estate investments. With fixer upper real estate you have to worry about a furnace going, re-paving a driveway, insect infestation, or a whole world of other problems. Pre construction investment real estate is brand new out of the box housing, there are no major problems that commonly accompany older houses.

  • Free Vacations – Buying pre construction investment real estate in Florida or Las Vegas means you have a free vacation house when the family goes on vacation. Fixer uppers are usually close to your home for easily access and typically not a place your family wants to vacation too. Most people do not have the luxury of buying a fixer upper house halfway across the country and flying down every weekend to work on it.

  • Rental Income – Rental income is a huge factor for many pre construction real estate investors. The fact that once the condo or townhouse is built and they can rent it out for more money then they pay a month is very appealing. Think about it, if you receive $2000 a month in rental income and you only pay $1300 for your mortgage and upkeep AND your house is skyrocketing in value… Is that a good investment?

Cons in Pre Construction Real Estate Investing
* You Need Money to Make Money – Because pre construction investment real estate is so sought after developers are demanding a higher percent for down payment. Often times developers want 10-20{ef6a2958fe8e96bc49a2b3c1c7204a1bbdb5dac70ce68e07dc54113a68252ca4} of the property sale price as a down payment, also just to hold your spot (a reservation) often requires between $2000-5000.

  • Not Every Project is a Winner – The biggest downside to investing in pre construction real estate is with so many projects popping up it’s hard to find the most profitable investment. Although at the current time most pre construction investments will make you money it’s important to do your due diligence and research the developer AND the management company. Make sure your real estate brokerage has your best intentions at heart, many investment brokerages only focus on a handful of projects where they make the biggest commission.

  • Money for Nothing – One reason that some people stray from pre construction investment real estate is the simple fact that they do not feel comfortable buying a property that they can not see the finished product. Remember, when you’re going to buy pre construction investment real estate it usually hasn’t even been started yet. This tends to scare amateur investors because spending that much money for them is usually an emotional buy, the seasoned investor understands that the reason they are getting the price they are is because it’s in the pre development stage. If the property was already finished the price would be more. I hope these basic Pre Construction Investment Real Estate Pros and Cons help you to make smart investments in the future..