Tips On Preconstruction Deals?
I have never done preconstruction deals, either houses or condos, but would like someone who has to provide some info if possible. Are these easy to flip? Thanks.
I have never done preconstruction deals, either houses or condos, but would like someone who has to provide some info if possible. Are these easy to flip? Thanks.
I work (as a selling agent and a buyer's agent) with several builders. The so called "preconstruction deals" are there, but you must be careful. In this day and age, a new construction (with preconstruction pricing - be the first in a subdivision) can get you up yo 60% below market value. The builder is selling homes not selling the market. They have a cost for the land they are developing (or bought from a developer) and a cost for materials, marketing and labor. Then they figure out a profit margin and start pricing. Often times the homes are starting at the current market value of a similar home in the area. that is fine because you are not buing that home that year, you are buying tomorrow's home at today's pricing. Some markets (in Orlando) are seeing 30% to 60% gains in new construction homes over the initial contract price.
For an investor, here is where it gets tricky. First, the builder is going to require a $5000 lot hold deposit. Then, after contract is signed, they will want 5 to 10% of purchase price for deposit. For a $500,000 home, that is going to cost you $50,000 and you do not see that money for upwards to a year or more as the home is being built. So, be prepared to pour out some initial capital.
Some builders have caught on to investors and are limiting you on several fronts. First, they may only let you buy ONE home in the community. Second, if you do not LIVE in the community for ONE year, they can take the equity from your sale and pocket it. And third, the communities are going up so much slower. To get the max of your investment, you must wait until the community is SOLD OUT and BUILT OUT. No more trucks, no more dirt. Now, builders are only building 5 to 10 lots at a time. Delaying your ability to sell faster.
If you do not plan to live in the home, do this. Buy a 3 or 4 bedroom home with as many bathrooms as is reasonable (3/3 or a 4/3 is better than 3/2). Get a single story with maybe a bonus room that can be converted to a bedroom. Three car garage (if applicable). If you are in Florida, TILE TILE TILE - the 16" to 18" tile. Wood is next best. Get neutal colors for everything. Upgrade the kitchen (Granite or corian) and Master Bath. Skimp every where else. Don't get a pool (unless it is less than $20,000 option) BUT, try to get a lot that has enough room to put a pool in later. If you can, get a home on a cul-de-sac or with a water view (it does not need to be on water - but you will always get that investment back).
Be wary of custom builders who require pre construction loans. They are beautiful homes and quick builds but you are already closed on the loan before construction even starts. Make sure you can assign the deed anyway you want, that way, you could sell the home as it gets nearer to the completion date - if you wanted to.
The smaller homes sell faster and reap the best $ per SQFT ratio.
Hope this helps.
Great info thanks.
i thought about it before, thanks for the info.
A friend of mine is a real estate agent in Destin Fl, and he's done this with the new condos being built. Would these condo's have the same issues as houses being built in a subdivision?
I have had a somewhat similar opportunity to pre-construction arise. A builder has constructed a home in a new sub-division and is offering a sale-leaseback to show as a model for one year. The numbers appear to work out well from a CF standpoint and aside from having the downpayment $$ tied up for the year, we feel the purchase price/appreciation yields a decent NPV return. If assignability of the contract is in place, would anyone who's done this sort of deal have reservations? The property in question is in SW FL. Thanks in advance.
The reservation you should have in pre-construction deals, is that it still is speculation. Appreciation is not a guarantee.
Quote:
On 2005-01-12 00:51, tcar wrote:
I have had a somewhat similar opportunity to pre-construction arise. A builder has constructed a home in a new sub-division and is offering a sale-leaseback to show as a model for one year. The numbers appear to work out well from a CF standpoint and aside from having the downpayment $$ tied up for the year, we feel the purchase price/appreciation yields a decent NPV return. If assignability of the contract is in place, would anyone who's done this sort of deal have reservations? The property in question is in SW FL. Thanks in advance.
Preconstruction is great! You must have a good banker in place and the ability to wait for profits. I dont know anywhere else you can invest $300.00 for a letter of credit, make $0 in payments, and profit more than most peoples yearly salary on one deal. You must be very carefull right now especially in our market in Gulf Shores Al . The pre construction seems to be more like end user pricing. I am currently going up on all units i have listed right now because of the new pre construction pricing that has come out in the last few days. Dont be scared of preconstuction it has changed my life and can change yours too. :-D
Why not just respond here so everybody can learn?
Find a developer to create a realationship with. They are always looking for people to invest $$ in their ideas. If they are a true developer they are glad YOU make $$ on the deal so everybody can get on to the next deal. We found a great developer with a unique idea for the beach and the rest is history. Our developer has a great banker so all they need from us is a letter of credit. Also our developer sells directly to investors. she does no use realtors. My banker in turn writres an unsecured letter of credit and i pay a nominal fee $325.00 to my banker. But ofcourse a little luck
how do you view a private message?
Tamala1,
Do you do any other investing other than condo speculating in Mobile area?
ddstew
Not yet !! Why do you havesomething?
I have investment property elsewhere, but looking to get some closer to home...
ddstew
I sell for a builder and have done quite well buying early at initial releases. I find it the easiest way to invest but you have to be careful and evaluate several factors. Most builders in a new community will not overprice their homes at the start because they want to create momentum in sales and raise prices accordingly. You must get in early in a large development. You must be prepared to rent the house (possible until the builder is sold out) because you will not be the only investor to purchase and there will be stiff competetion both from the builder and other investors trying to unload their house. It can be difficult to rent a new home because of the ongoing construction with hammering at 6:30 am and dust/dirt everywhere. As the builder settles more homes there will be more for sale/rent(especially if it is towns or condos). I recently bought a new townhouse at first release for 285K base. I rented it section 8 to cover my costs. The last townhouse just sold for 426K base by the builder. I did well but there are at least 10 towns for sale by investors and many for rent. Some have been for rent for 6 months. In preconstruction investing, the motto is early,early, early, and location, location, location. Hope this helps.
wow over 900 visits and 15 posts come on lets hear how yall are doing
Hey Rob, which builder are you with and how can I get on one of your lists early? :-D :-D :-D
Quote:
On 2005-01-18 18:09, robshap wrote:
I sell for a builder and have done quite well buying early at initial releases.
Im doing great as well, just contractted a builder to build a 118k, ranch...last week got an offer to purchase for 145, and the walls arent even up yet. Can go wrong and alot easier i think than rehab. Got my realtor looking for other opportunties like this to take advantage of.
Hey Rob, which builder are you with and how can I get on one of your lists early? :-D :-D :-D
Quote:
On 2005-01-18 18:09, robshap wrote:
I sell for a builder and have done quite well buying early at initial releases.
you dont need 100 % financing to get into precon. you need to have a good banker that will write YOU a letter of credit . Or cash , developers need cash or your credit to make their dreams a reality. Dont know of any books. Get out of your truck or car and talk to the guys doing the work, they will have the number of who writes the checks on fridays. Thats who you need to talk to
Im beginning myself in preconstruction .... i have an oppurtunity to have a 3200 sqt home to be built on a 1 acre lot for 150k which around that area the FMV is 400k plus.... I have terrible credit so a bank wont even look at me so how would i be able to get it done ? The builder informed me that if it gets done the house can be sold within 90 days...all i have to do is come up with the funding...its harder the I thought.... any information would be greatly appreciated
i was trying but i cant get your email .....
fred that website is it yours ?? do you have your own little business ?
is ur builder only for ca?
I have been buying pre-construction deals for the last 5 years. One thing you want to make sure is that you are in an uprising market. That is the #1 key to your success.
I was in Texas two weeks ago and negotiated to purchase 4 houses from KB Homes. They would only allow me to buy 4 houses, one from each tract. My strategy is this. Put a 5-year interest only loan, collect the postive cash flow and 1031 Exchange out of in 5 years or so when the market is at the top.
The deals that I negotiated I was able to put only $500.00 down. There are still some areas out there that will allow this. One other thing is try to negotiate with a broker to give you back half of the commission towards your closing cost.
Best Riches,
Jeff Adam
[addsig]
Tamala1, i did just what you said and it worked.
I think I am in the right direction now. They will tell me when I can put down my reserves. thanks!
Quote:
On 2005-02-02 21:14, tamala1 wrote:
you dont need 100 % financing to get into precon. you need to have a good banker that will write YOU a letter of credit . Or cash , developers need cash or your credit to make their dreams a reality. Dont know of any books. Get out of your truck or car and talk to the guys doing the work, they will have the number of who writes the checks on fridays. Thats who you need to talk to
Jeffrey,
I am looking at some KB homes in Florida but they are telling me I need about 3k for each deal.. If you have some more info on how I can get by with putting only a small deposit down then please let me know. (landomagic2k -at- spymac -dot- com)
My credit is above 650 and I have about 7-8k to invest. I just want the most bang for my buck. I am hesitant to put it all down on one piece of property and only getting a small positive cash flow from the rental income
Thanks
Quote:
On 2005-02-05 00:12, JeffreyAdam wrote:
I have been buying pre-construction deals for the last 5 years. One thing you want to make sure is that you are in an uprising market. That is the #1 key to your success.
I was in Texas two weeks ago and negotiated to purchase 4 houses from KB Homes. They would only allow me to buy 4 houses, one from each tract. My strategy is this. Put a 5-year interest only loan, collect the postive cash flow and 1031 Exchange out of in 5 years or so when the market is at the top.
The deals that I negotiated I was able to put only $500.00 down. There are still some areas out there that will allow this. One other thing is try to negotiate with a broker to give you back half of the commission towards your closing cost.
Best Riches,
Jeff Adam
I am in the midst of preconstruction purchase, and already gave them 15% down, and they want another 5%. How do you get them to accept a letter of credit instead of cash? What do you need to give the bank to qualify for a letter of credit?
Thanks! 8-)
if you own half the neighborhood tell your realtor you want to buy the house.
i must not understand the question???
I work for Beazer. I look for deals with all builders. I search for "coming soon" communities and sign up on the contact list. As they near sales, I find out from other salepeople who will be selling and work my way in early.
[quote]
On 2005-01-27 00:35, Tchakamon wrote:
Hey Rob, which builder are you with and how can I get on one of your lists early? :-D :-D :-D
Quote:
On 2005-01-18 18:09, robshap wrote:
I sell for a builder and have done quite well buying early at initial releases.
I live in Seminole county Florida, anyone know of any upcomming developement in the Orlando area?
I am a Realtor in Seminole County and I was the 2nd post on this growing topic.
I know of a ton of new developments here and coming soon. I try to get involved during the land deal, then follow up to see who is building, then follow up as to when there will be sales.
It is EXTREMELY frustrating to buy new construction in the Orlando area. It used to be cake, and gold cake at that. Now, they are telling you that you need to live there for a year. Some builders (Ryland) are limiting you to one house per year from ALL of their places. They are all requiring PREQUAL from their banks BEFORE getting on the LIST and almost all the builders have abandoned the notion of first come first served. LOTTO. You and 300 of your closest buddies get to wait and see if you are "lucky" enough to "win" the opportunity of buying a home. One of 5 lots. Then prices rise.
COndos are still good, town homes are so hot and homes, if you can find them are blazing.
You will need financing in place and you will need cash out of pocket to buy in Central Florida.
I am an agent that works with buyers and does "rebate" some cash back to the buyer for closing costs. If you want that kind of deal, let me know.
CNK--DC sounds like Orlando. No joke- last spring people camped out in tents to be the first at the initial release. One women started a service where she has people wait in line for you for a fee. Now they have reservation lists and lotterys. The builders are getting weary of all the investors and now are putting clauses in their contract to make you state that you intend to owner occupy and if you dont they can repurchase the house from you at your contract price. If you rent, they say they are entitled to your rental income. I have no idea how legal any of this is. I doubt they will try to enforce any of this. It seems like a scare tactic to me.
Jacksonville has been a hot pre-con market. We put 2K down on a 200K+ house in Sept. 03, by Feb. 04 the builder had gone up 20K for our model. We closed April www.04.Now, the resales of our model are priced 60K more than we paid for our home. My builder was KB Home. All they wanted was the 2K down, less than 1% of our purchase price and they started building with a commitment letter from my mortgage broker / lender.
I am looking at other upcoming KB Home communities, as well getting on builders "interest lists" for other "coming soon" communities. However, its sill about location and demand.
I too have encountered builders who put restrictions on investors in certain areas, like Orlando - Transeastern Homes for one - they require a lager deposit and have you sign an agreement with penalties you have to pay if you sell your home before 3 years.
I wish they would start a separate topic for this area of investment...much demand for info!!
[ Edited by mcduffie on Date 02/19/2005 ][ Edited by mcduffie on Date 02/19/2005 ]
I guess I started a good topic... :-D
I would also like to get some info on the Jacksonville area as well.
I have a realtor in St Marys, GA, which is about 25 miles north of Jacksonville and she states the market is on the rise there as well
Has anybody seen anygood preconstruction in the pensacola area? I know first hand they had alot of damage from hurricane ivan.
I am a younger guy who works for a real estate investment company but i want to start investing myself. What would be the best way to get start financing to invest in something like preconstruction. I been researching but i need to find the best way to put as little down as possible.
Does anyone know of any pre-con builders in Houston, TX?
CNKMarketing I am curious as to what companies you work for and what areas you are in? The dangers of preconstruction are to evident without enough research into the company.
Pre Construction deals in Chicago area
Anyone have any information as to whether the market is open to such deals or have developers clamped down on such activity?
Thanks
Can anyone give me some info on letters of credit and how they would work with preconstruction. What type of qualifying is required?Also what specific areas in Alabama would be considered hot right now? I have seen this state mentioned a few times here. Thanks for your help.
Letters of credit come from your banker. They are not easy to get becuase they dont really make any money on them. Usually about 2%. Start talking with your banker now becuase it can take some time to get one. Gulf Shores Al is booming, Put some money there it will grow.