Please advise if this investment strategy will work?

[Hef]

Hi All,
I have heard a lot on investing in homes and/or residential condos before they are built (i.e when they are still in the marketing phase). After the project is completed(in a year time), one is supposed to sell it to make a profit due to the appreciated value of the property.

I am absolutely novice in any king of real estate investing, therefore, looking for some help with regards to the following:
1) Is this a viable invesment option?
2) If yes ,then what to look for in such kind of project and what are the
potential problems one could face by such kind of invesment.

Your help would be greatly appreciated.

Thanks

[Homesurfer]

It worked in recent years, but that is because the market was going up steadily and sometimes rapidly in many areas. I wouldn't recommend it now -- unless you've done your research and are willing to accept risk.

If you're looking for "safe" investments, then your rate of return will be low - because you'll be buying money market funds, CD's, Treasury Bills, and such. If you're looking for high returns, then your risk goes up.

If you can't afford to lose, don't take the risk.

[kensmith]

Good points Terry, most pre-construction type investment strategies are based on a huge increase in home value and that isn't happening in most places anymore. We are moving back into a period that sound real estate investment strategies are going to be needed. Things like buying rentals based on the building actually making money (positive cash flow).

[Hef]

Thank you all for your replies. I live in Canada (Ontario) and here the housing market is slowing down, but not very rapidly. I was looking at the Survery of Canadian house prices for all across Canada (it compares house prices of the first quarter of 2006 to the last year prices) it has figures as the how much % the prices are appreciating/depreciating/stagnant in different cities and suburbs in Ontario.
In some areas price appreciation is stagnant, in some areas it is increasing more rapidly than in others(5-15%).

If the given figure can be verfied through at least one other independant source, then, can someone make a preconstruction investment decision. Basis of this decision would the fact that if the price appreciation in the first quarter is 9% for a city, then it wouldn't go to zero or negative in the current year or may be in the upcoming year(it usually take 1-1/2 to 2 yrs for a housing scheme to develop).

If yes, than, does anyone have any knowledge of the challanges that could potentially be faced in such kind of decision.

Thanks

[judyo]

The challenges faced would be that you might not be able to sell your property right away as the developer will be selling, sometimes with buyer choices in upgrades, etc. You'll be paying the mortgage & any other costs until the property sells.

We had two "hot" condo buildings go up across the street from the train station to downtown Chicago. One finished construction last year and a lot of investors purchased units. There are currently 14 active units for sale and only a few of these units have closed this year. The newer complex has 17 units currently available with only a couple closings so far. There will be a third complex sometime soon. I'm wondering how many investors will jump on that.

Some owners are giving up on selling and renting the units to get some money coming in. When they try to sell again, these units will no longer be new and it is difficult for me to see that these investors will earn much, if any, profit as these were pricey to begin with.

So you could be holding onto a property for a long time. Are you looking to become a landlord, because that might be your second option if you can't sell quickly. If you are not a licensed agent you'll need to get it listed in the MLS as with slowing markets it is ever more difficult to sell by owner. Figure out the cost of selling and how that will cut into your profits.

Even with single family homes, I've seen developers/builders build spec homes in a new subdivision that sat & sat because buyers didn't like the style or design choices (floors, cabinets, countertops, etc.). One builder was at his wit's end with one of his spec homes that just wouldn't sell. He even offered to make changes but he ended up selling at a very low price. Of course, he built the place so he didn't take the loss that an investor would have.

[jessiesc]

I agree with all of the above posters.

I would add some statistics for my area: current active units - 4000, current active condo's - 2300, current active About to Close Pre-sale condos - 1800 (based on a search of remarks, may be slightly lower)

I mention these because this will be your competition (not counting the builder) when you go to sell.

I agree with everyone here, pre-sale condo flipping is a thing of the past.

I spoke with a canadian developer the other day (he was giving a seminar), according to him the canadian market is experiencing the same slow down the american market is, just at a slightly slower pace.

Not knowing what your investment budget is, makes it impossible to offer alternatives. Therefore, the best suggestion I would make is: IMO - Rental property where the rents are low and the leases are about to expire is your best first time investment strategy. A good agent can help you find these with very little effort.

Hope this helps.

[sam12]

A friend of mine made a lot of money doing that ago.
But now the market has changed.
He was doing deals in Las Vegas and Phoenix AZ.
I myself signed up last year, but the value didn't go up.
I got lucky the builder was late in building the houses, so I was able to take my deposit back. If you want to buy and hold for 10-15 years it could be OK.
But to hold it for one year and then sell it is quite risky.

sam12
Be Very Careful.

[Gillier Group]

I am not sure about your situation or if they do what I am suggesting in the U.S but you may want to look into a investing in a hotel room instead. Look for places with a high occupancy rates in popular tourist destinations. Generally these types of investments through the right people and location will easily cover your investment outlay and offer a high return annually. With hotel rooms the value generally doesnt go up much but the returns are consistant but make sure it is managed by a highly respected international hotel chain. I know this is not what you were asking but only a suggestion.

[Lisa]

How about investing in resort property? There are some great deals with a great developer that are wholesale with leasebacks. I've just done my first "waterfront" with little cash down.

Lisa
lisa@nawrei.org

[Dan Auito]

HEF your profile doesn't say where you are located but in a majority of places the bubble has burst. Inventory is piling up and demand is almost non-existent. Tenn and N.C. are the exceptions to the rule.