Pre-construction real estate is the property which is sold by the builder to the investors after the planning is complete but the construction yet to take place. Actually suppose a builder buy a land in Florida. Let’s suppose that they want to build 200 condos on that land. Let’s suppose that he goes for finance from any of the bank. Its quiet sure that bank will ask him/her to sell some condos before construction. He will then only get the loan if he sells some of the condos. These types of properties are called pre construction real estates. Pre construction real estate can earn you millions of rupees for both investors and builders. However it has some pros as well as cons.
Let’s suppose that a builder buys a land. He decides to build 100 condos over it. He will definitely ask for loans from bank. Bank will tell him to sell some before taking loan. Suppose the cost of each condo is $300000. The builders call for some investors and give them the offer to sell a condo at $270000. He also asks to pay $10k advance as a registration fee. This fee is refundable. The builder goes to the bank and gets its loan finalized.
The builder can then ask more investors for the similar deal. Once the deal is finalized, he asks them to deposit 10% more which is non refundable. You pay that amount and the developer starts building condos. You now wait for the condos to finish. Suppose the deadline is 12 months. After twelve months, suppose the price of the condo increases by 10 %. As a result the actual value of condo is increased to $330000 from $300000. After finishing you give the condo on rent. You see that the price of the condo sees a yearly increment of 5%. Now you decide to sell the condo. You find out that you have earned around $97000 as profit on condo.
Types of incentive offered by developer to investors:
Following are some types of incentives:
1.Below market value price.
2.Cash back after closing.
4.No properties taxes for two years and so on.
Pre construction increases the effort of the investor but the fruit is so sweet that every one is ready. Pre construction is fruitful both for developer and investors. You are required to do some homework but you will really appreciate for what you will get in return. Pre construction is the headache of the developers. You are only required to buy it. These ways both of you are benefitted. Developers get their loan sanctioned where as the investors earns a profit without much effort.