S.E.C. Real Estate Observer

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Pre-construction or off-plan is a way to invest for yourself and your clients in real estate developments before or while they are being built. You or your clients through this method provide capital for real estate developers at the planning stage of the development. This type of investment offers easy and convenient portfolio diversification with possible tax advantages. Not to mention the opportunity to make substantial gains in two years or less.

How are these gains possible? With leverage. When you buy off-plan you don’t pay for the total property up front. In many cases you need only pay a small percentage initially.

Let’s look at an example. You put down $10,000 dollars on a $200,000 condominium unit (5%) and you have chosen a good location and a qualified reputable builder. You wait for completion of the project, and property values will no doubt rise and with proper negotiations you have purchased at a discount from the price of the finished product. The scene is now set for some substantial profits. The project is completed and no doubt as sales progress the developer will raise prices, thereby adding to your bottom line when you decide to market the unit.

The question naturally comes up as to why a developer would want to offer off-plan investments of this nature. The answer is simple, because all developers need cash, and in addition, if they can qualify their developments with pre-sales they can negotiate substantially better terms with their financing sources.

Buying pre-construction is fairly straightforward. You’re buying into a development at the point where nothing beyond the initial plans exists. It should however, be a property that a large portion of the general public would like to own. You want to be sure what you are buying will have an attraction to a large segment of the population to either own or rent. There are developments designed to appeal to retirees, vacationers, and others to meet the local housing market. As an example, in Las Vegas the high-rise condominium market has gone bonkers and off-plan investments are all the thing. In several cases all of the units have been sold and the developers have not yet broken ground or been permitted. Some of this appears risky to me, but maybe I have lived in Vegas too long.

Pre-construction developments can be found in the United States, and around the world. There is a lot of activity in Europe for both residential and tourist developments. Other locations include Australia, New Zealand, Dubai, South Africa and anywhere high numbers of tourists and retirees are found.

Probably the best bet is to stay in your own area where you are the most familiar, but if you wish to venture out and explore other areas of off-plan investments you can get on the Prestige Groups mailing list by emailing tgreenwood@theprestigegroup.com.