Pre-Construction Investing

With pre-construction investing, you can make a large profit, and there are even ways to limit your risk. This strategy generally won t work well in slow markets, but then markets go up and down. If the time isn t right now, try it when prices are rising.
The first time I remember hearing about this was in the late seventies. As condominiums became more popular, the prices rose consistently (remember that this was a time of high inflation too). Smart investors took advantage of this before the condos were even built.
First you need to understand how these projects were financed. A developer would determine that there was enough demand for a condo complex, get an option on some land, and have a plan drawn up. The banks didn t want to loan money on an unproven plan, however. How did the developer prove that the units could be sold?
By selling them! If you want to be the proud owner of one of the beautiful new units in the Blue Spruce Condominiums, you had better buy now! That was essentially the pitch, but of course people wouldn t (and couldn t) pay for something not yet built. They could sign the contract to close on the unit once they were done, however, and put down a $500 deposit.
If the units were expected to sell for $55,000 when done, the developer might sell the first dozen for $50,000, just to get things moving. Once he had enough contracts in hand, the bank would put up the money so construction could begin. Six months later, as the condos neared completion, the last ones might be selling for $65,000. Things already there to look at tend to sell for more. (And inflation was at double digits during some of these years.)
Investors who bought a unit at first had a contract to buy at $50,000. If it was assignable, they could just sell it to a buyer for say $13,000, which with the $50,000 price added up to $63,000, still a discount from the going rate of $65,000. If the contracts were not assignable, he could sell the unit and do a simultaneous close. This latter way had more costs, but he still made over $10,000 on an investment of $500.
By the way, as long as the language of the contract limited damages to the deposit amount, (ask an attorney), the buyer could walk away if necessary. The most he would lose is $500.
Pre-Construction Investing - A More Recent Example
Around the time we moved to Tucson, Arizona (2004) there were new subdivisions going up all over. One developer had a subdivision where he was building homes to sell for $150,000 and by the time they were half sold, he was starting to sell them for $200,000. Lucky homeowners who put their deposit down early got to move into a home with $50,000 of instant equity. This did not go unnoticed by investors. Soon many of the sales were to investors who intended to immediately resell the homes for a profit once they were complete and they closed the purchase. Some did very well in this way.
Eventually, the developers stopped selling to the investors. So many investors were in on the game that when the subdivision was done, the developers had to compete to sell their own remaining homes while all the investors were trying to unload theirs. Prices could be pushed down or houses could sit on the market longer, creating more expense for the developer. They preferred to sell to people that were actually going to live in them.
There are other ways to invest in pre-construction deals. Some builders need your help to get financing, for example. If you agree to buy their new house, you can use your credit standing to get a construction loan. They might line up a dozen investors to get a subdivision built in this way. The sales price is set at a level that hopefully assures both you and the builder a profit.
You sell as soon as the home is complete. The builder may sell to you for $160,000, knowing the home will be worth $190,000 when done. If his cost is $130,000, and you are his way to get the money to build it, he is happy. Often the bank may not know that it is an investor and not a resident buying the home (you changed your mind?), but you can let your conscience be your guide when it comes to the financing paperwork.
You can do something similar with condo conversions. When an apartment building is converted into condominiums, the developer may need to pre-sell enough units to get the cash and/or financing necessary for the deal. These early sales are often at prices far below what the finished condos sell for. You might put a $2,000 deposit down on a $85,000 condo that is worth $95,000 or more when it is done.
You ll notice one thing in common about all of these examples. They assume a hot real estate market where things are selling relatively fast and prices are rising. That is what you need to really make money safely with pre-construction investing.
Copyright Steve Gillman. For a Free Real Estate Investing Course, and to see a photo of the home we bought for $17,500, visit: http://www.HousesUnderFiftyThousand.com



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Rate cut answer blowing in the wind, says Lomax

The issue of interest rate cuts has been high on the agenda this month as the Bank of England s own inflation report hinted strongly at UK mortgage cuts next year. However, the minutes of the latest meeting of the monetary policy committee (MPC) showed that the people making the decisions were far from convinced that the time for such cuts was nigh. With every stakeholder in the property industry, from lenders to homeowners and property investors comma watching the situation and waiting for news, it is perhaps natural that every piece of economic information, whether in the housing market or other sectors, is both interpreted in terms of its potential rate-setting implications or prompts a call for change. This was certainly true today when the British Bankers Association (BBA) published its latest figures for UK mortgage lending. These showed that in October the net increase in mortgage lending was 5 billion, down from 5.9 billion in September and also lower than the six-monthly average of 5.6 billion. Gross lending was also down, standing at 18.8 billion against 18.9 billion in September and the six-month average of 19.1 billion. BBA statistics director David Dooks was clear enough that the figures showed a slowdown in progress, saying: "October s data provide evidence of a rapidly slowing mortgage market and of consumers limiting their personal borrowing." He said the strain on household finances, the introduction of home information packs and the impact of higher interest rates were all contributing to the trend. The interest rate aspect was cited by the Royal Institution of Chartered Surveyors (Rics) in its response to the figures. Rics chief economist Simon Rubinsohn said: "The accumulating evidence of a more troubled housing market is likely to strengthen the case for an early response from the Bank of England." But when will the MPC make such a move? The rationale for holding back from a rate cut in recent months has been the uncertainty over how various factors, particularly the credit crunch, were likely to affect the inflation situation. Three successive months of the Consumer Prices Index falling below the target rate of two per cent did nothing to change this view. What happens next is, despite the signal of cuts to come emanating from the November Inflation Report, still a matter of uncertainty, according to MPC member Ruth Lomax. Speaking in Hull, Ms Lomax warned that every prediction had to be taken with "a large pinch of salt" - even the Bank s own, which she said were "subject to a very wide margin of error". Citing the tighter credit situation, the ability of individual households to deal with it and energy prices as the factors which would determine whether the "upside" or "downside" influences on inflation prevailed, she compared the challenge faced by the MPC to that of meteorologists on a windy day, who were trying to work out if the brewing storm was "a force 6 strong breeze, or a full force 8 gale". In the midst of such uncertainty and, to stretch the weather analogy further, the desire not to become the economist equivalents of Michael Fish the day before the 1987 Great Storm, it may be that the MPC s wait-and-see policy will persist for longer than many will wish. Then again, it may not. However much Rics, homeowners or property investors will wonder when the cut will come, the answer may indeed be blowing in the wind



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Invest in a Home and See Your Money Grow!

Purchasing a home can be a fantastic investment, especially as home values continue to grow. Besides looking at a home as The American Dream or a place for you and your family to live, realize what an outstanding investment it is!
Some people get so caught up in the need to purchase a house and how that is the greatest purchase they are going to make, they often forget about the investment part of the deal. I know that seems odd, but with an increasing shift towards purchasing a home with little to no money down, and creative mortgages, equity is literally ripped from the home owner, as they often owe a lot more than the property is actually worth. Building the equity in a home is a long term commitment, especially when the mortgage principal is a large amount.
It is important for home buyers to understand why purchasing a home is so important, and not just something they are supposed to do.
The reason why property is such a great investment is that it can increase in value over the years. So you purchase a home at a certain price, and in the years that follow, the value is greater than the purchase price and you have just turned your original amount of money into more!
There are instances where property valued and purchased at $300,000 has been appraised for $600,000 10 years later! You have just doubled your investment! In reality, you could sell the house and make an additional $300,000! Some homes will appreciate faster or slower than others and the area the house is in and development around it usually help determine how much a home will appraise for.
Of course this all depends on your mortgage and interest rate. The more you can pay off the mortgage, the more equity is in the home. Also, when the value increases, you have money you can take out of the house and use it for personal use.
Many people choose to take money out of the house and use it for home improvements and renovation, making it even more valuable! Upgrades, quality materials, and additions can greatly increase the value of a home with little investment.
So looking at home your as an investment that will give you a decent return on your money, it may important for you to buy in an area that is going to quickly appreciate in value. You may also look at how long you are going to stay in the home. If it is going to be short stay and you are planning on purchasing another home in a few years, you may want to look in an area that will appreciate very quickly. By the time you move, you will have a house worth more than you bought!
If you are planning on staying in a home for a long time, perhaps appreciation is not as important, because it will appreciate no matter what, even if it is not as quickly as you would like it too. You may allow certain things like appreciation time as not as important if this is a home you are going to live in for a long time. You may look to amenities, yard, square footage and so on as more important than appreciation.
All these things will help determine the type of mortgage you will get too. Generally, the longer you are going to stay in a home, the longer the life of the mortgage can be. As is the opposite, you should have a shorter term mortgage is you are not planning on living there for very long. Do realize, the shorter the life of a mortgage, the more quickly you can build up equity in your home, and less money you will pay in interest. You can save yourself thousands of dollars by accepting a shorter term mortgage.
The faster you can pay off the money owed on your home, the closer you are to owning your home free and clear, and have full ownership of the property and the equity in it. As the home appreciates, you can see your initial investment grow! A lot of the time, your money is better in a safe and steady market such as real estate, as opposed to the stock market.
So buying a home can mean many things for many people. It all depends on their motivation and intent for buying a home. Is it status? Or maybe a dream home? How about a safe and comfortable place to provide the family? Or maybe it can be a great investment that will have a solid return. Whatever a home means to you, don t forget the investment aspect of it and try not to give up too much equity to a lender. Pay back your mortgage quickly and timely, and you will reap one of the best benefits of owning a home: a return on your investment.
John R Blakefield is a mortgage and real estate specialist. For more information, articles, news, tools and valuable resources on home mortgages or investment loans, refinancing, debt solutions, visit this site: http://www.scourtheweb.com/mortgage/.



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Regulation may aid Indian property market

India has been one of the rising stars in the world economy in recent years, booming in industry, IT, filmmaking and numerous other ways, one of the two big beasts, along with China, of the developing world.
The http://india.assetz.co.uk/">Indian property market has been booming alongside this overall development in various ways, be it http://india.assetz.co.uk/">real estate India as new building takes place, or the buy-to-let that is made possible by the growth of the middle class and the popularity of many areas with tourists.
Among India s advantages is that it is the world s largest democracy. Among the disadvantages is a lack of regulation in key areas, including real estate. This, of course, can cause problems for builders, which in turn can impact the property market in the country.
However, this is all about to change, reports Forbes, as the government has responded to calls for better legal protection in this area. S Jaipal Reddy, the urban development minister, told reporters this week: "A quasi-judicial regulator is required in big cities as both consumers and builders may need protection," adding that "we will set up a regulator in Delhi which would serve as a model for other states to emulate."
The report adds that the body will be set up inside the next six months, although it will not be a nationwide body as, Mr Reddy noted, land regulation is a matter of state-level jurisdiction. However, the pressure to eliminate malpractice throughout India is likely to grow, according to Jonathan Yap, chief executive officer of Singapore-based Ascendas Trust Fund.
He said: "If India wants public investment, fiscal regulation needs to be in place. There needs to be a clear structure for taxes and proper titles. There s a fair bit of things to do."
Yet India does appear to be moving in the right direction in this regard. It has just moved up 12 places in the rankings of the nations listed in the World Bank s 2008 edition of Doing Business, reports the Economic Times.
This still places it 120 out of 178 on the list, which indicates it has some way to go, not least with China well ahead at 83. But, the report notes, it has provided better credit access for business, better cargo rights and electronic registry for security rights. In short, business regulation is improving and should continue to do so. World Bank investment policy specialists Sabine Hertveldt told the paper: "We expect the India ranking to go up further next year, since a lot of the reform processes are pending."
So with the prospects looking good for improvements in regulation and legal protection, those involved in the property market in India may find that the amount of red tape and difficulty drops for them too.
Opportunities abound in India for investors. For example, Homesgofast.com reported yesterday that deals available include off-plan two-bedroom apartments starting at 23,958 in Rudrapur, just as a special economic zone is being set up just outside the city that could help the properties appreciate rapidly in value.
Thus the investor in Indian property may be able not only to enjoy grabbing some bargains now, but having easier and better systems to deal with as their involvement with the country continues into the future.



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