Why Pre-Construction Properties Need To Be Purchased At A Discounted Price In An Emerging Market.

Pre-construction investing is a popular option for many property investors. Basically it is when an investor commits to buying a property before it is built.

The investor is virtually buying a piece of vacant land where a development project is planned to be constructed. In most cases construction happens within 12 to 24 months.

Success when investing in pre-construction properties generally relies on two important points:

1. Committing to a pre-construction property at a discounted price on the front end.
2. Buying in an emerging market.

Buying a pre-construction investment often comes at a lower price. The pre-construction investor can usually lock-in the purchase price at a lower level than after construction has been completed, or in some cases, before it has commenced. Developers often complete a development in stages and it is to the developers advantage to have firm sales confirmed in advance of construction. For the developer it provides a level of certainty and security on which to finance the project.

If there are several units/apartments within the development, prices will usually continue to increase from one stage of the development to the next stage.

During each stage of construction an investment property will generally appreciate in value. However, this is not always the case, so it is important to understand the particular market at the time you are investing.

To buy a property with potential to appreciate in value during the construction phase it usually pays to invest in either a market that is currently appreciating, or a market that is predicted to appreciate in the near future.

Buying Without A Mortgage

Buying a pre-construction investment doesn't always require a mortgage, because payments are not always required during the construction phase. Construction may be completed with the developer’s own financing. The property investor may not even require mortgage financing until the property is completed. It depends on the terms conditions of sale. This can provide an opportunity for a quick capital gain if the investor decides to on-sell the property prior to completion. The property investor may never need to obtain a mortgage because he/she sold before payment was required.

Buying a pre-construction property can have several advantages including: purchasing at a discounted price on the front end, delayed settlement until construction is completed, potential for an appreciation in value during the construction phase, and the possibility of disposing of the property at a profit before full payment is required.

This is why pre-construction investing can offer some distinct advantages over other types of real estate investing. This explains why experienced real estate investors often have a couple of pre-construction properties in their porfolio. Buying and holding pre-construction properties can free up time and money for the investor to concentrate on buying other types of real estate investments.

The key to profiting from buying pre-construction properties is identifying an emerging market that is soon to appreciate in value and committing to purchase with little or no money down.