Pre Construction Investing

Posted on January 11, 2008
Filed Under Las Vegas Investments |

Pre construction investing isn’t for everyone. If you have the heart and soul of a Las Vegas gambler or you have nerves of steel and the possiblity of losing large amount of money does not severly affect you, then pre construction investing may be your cup of tea.

Pre-construction profits are often among the highest in the industry. At the same time so are the risks involved. The greatest highs and lows that can be found in the field of real estate investing lie beneath the umbrella of pre-construction profits and many of the big names we know so well in the real estate investing field have made much of their fortunes through speculation and pre-construction sales. Can you say Donald Trump?

High Risk Can Mean High Profits…Or High Losses

Before I go any further, I have to make you aware of some investment dangers should you consider pre construction investing. While the potential for profits in this particular corner of the real estate market are unconventionally high the risks are also abundant. This is speculative real estate at its very best and as we have all learned in the past, when the bubble bursts in a specific market those who have the most invested are the ones who often loose most heavily.

The bigger the risk the bigger the reward but it also goes the other way. The bigger the risk, the bigger amount of loss that can happen. Can you accept losing all you money in a pre construction investment?

What Is Pre Construction Investing

As far as what pre-construction real estate is there are a few interpretations. The first is also the most obvious. You are buying real estate at some point before construction is complete. In hot markets like Las Vegas, you’ll often need to purchase the units before ground has broken on the project in order to get the lowest price for your real estate investment and highest potential pay off. Once you’ve purchased the unit or units you plan to sell you then begin seeking buyers.

In markets that are on fire like some Las Vegas suburbs and big retirement and vacation cities along the Florida and Mexico coastline the same property is not exactly uncommon for a property to change hands and have several owners before the unit is complete. Each one will take a little something home from the table for their efforts with those who get in earliest often taking the largest piece of the pie home with them.

How A Pre Construction Investor Makes Money

You may be wondering why this occurs and the answer really is simple. When the contractors attempt to get funding for their buildings in these large complexes they often need to have a certain percentage of the units “pre sold” in order to convince the banks that there is an adequate market and to garner some of the revenue that is needed to get the venture up and running, so to speak. So real estate investors buy these units at rock bottom prices because essentially they are paying for the idea of the unit (which hasn’t at this time been built and isn’t yet approved to be built in many cases) rather than a brick and mortar property.

As the project draws closer to completion, particularly in markets where real estate is in high demand, the value of the property rises dramatically ending in ridiculous profits for those who have managed to hang on.

The risks however are great. There are any number of things that can go wrong on a project such as this not 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, economies collapsing, and tragedies in the vicinity can occur before the property is complete leaving everyone who has invested heavily in the project holding a little bit of the bag and loosing their profits and, quite possibly, their investment. These projects generally take a great deal of time to complete which makes the risks that much greater and the anticipation of these events a little more difficult to map out ahead of time.

If you can manage to make it through however many investors see more than a one hundred per cent return on their investment making it a popular type of investment among many despite the rather large risks involved.

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