How To Analyze A Pre-construction Deal
How would you analyze pre-construction deals?
The usual format: X amount of dollars at pre-construction phase, no mortgage until finalized, to look for buyers at 2-3 months before the completion of the construction.
2 typical exit strategies: a) L/O down the line b) outright sale.
These deals can be found in many areas. I was looking at some Fl and TX.
Question: how to analyze the risk?
Paul,
It used to be that getting cash back was hard to do, now if you walk into a big bank and ask they say that is the norm. Thats nice we can get loans, but it doesnt answer the real question. The real question is - is it a deal. The best way to know that is to know your market. I can hire an appraiser that gives me high comps and I can hire one that will give me low comps. So go with the worst case scenario. and then look at the money left in the deal. If I comp out at $269 with an appraisal, and can buy it ( have a customer buy it) for $240K that leaves $29K in the deal. Lets say you want to keep $5K, that means your looking for customer who will accept $24K cash back. Find that customer and you will make money in this case ...
Tom Knutson
**Please See My Profile**
Expect the management fee to consume all of your projected cash flow. You should expect to breakeven at 75% occupancy. At a lower occupancy rate, you will likely have a negative cash flow. Not an investment I would recommend to the average investor.
If you elect to purchase one or more of these units, do so primarily for your own personal/vacation use. Put the unit in the rental program when you are not using it to generate enough income to pay the costs of ownership, and wait for appreciation to give you an acceptable payday.
Did I really say $2.62/gal??... $3.62/gal, lo siento.
That is what a title seach is all about. At the closing table, all of the mortgages would be paid off from the money you offered on the house, and the balance would go to the seller.
If the mortgages are more than the contract price of the house, there will be a big bold addendum stating that you are aware that there will still be money owed on the mortgages. At this point the buyer refuses to sign and the deal fall through (unless it is an amount you are willing to pay for). Of course you should have been forewarned on the settlement statement, which told you how much money you had to bring to the table to close the deal.
If you are offering to buy the house subject to the existing mortgage(s), be sure to state how much these mortgages are for on the contract. Then if another mortgage appears, or more is owed than you were told, you can back out.
If you need this information before making an offer, a preliminary title search is under $100.
Chris
So Chris, What your saying is that I am to assume that the Seller has this information and it is accurate, so I can estimate what the assignment fee will be.... at least until I have completed the title search correct.