Pre-Sale Construction - A Great Way To Go
By Paola Breda for
September, 2006
If you’re not sure what to do and how to decide about your next investment selection, why not consider Pre-sale construction projects?
If you are lucky enough to get in on the deal at the beginning of the construction project, you will ‘lock in’ at early bird pricing. Usually, builders and
developers have researched the market value and the maximum price a new home in the area will bear
before they open their site. Then, they low-ball their
prices to start a fury at the opening. This works wonders for the builder.
Soon afterwards, (after the first few purchasers sign their deals), the prices inevitably jump up. That’s why they only pre-print the specs and the basic
architectural designs when they start the site. The price list is always done weekly, with a “Prices valid until...” at the top of the sheet. This way, their
initial advertising shows the lowball rate, which allows them to continue advertising at that price, so long as they include the word ‘from’ in their price
If you’ve scouted out the area, as you’re taught to do in Ken McElroy’s “ABCs of Real Estate Investing” (from the Rich Dad series), you know that an
area has had some infrastructure changes, possibly new transportation announcements, a new government program, new jobs coming to town, low
vacancy rates, positive population growth for the last five or ten years, and a solid base for the economy. So, you know it’s a great place to invest - even
if the market looks like it might go down. Remember, some economies are local, and the housing section will stay solid, even if interest rates are going up,
or there’s a housing slump forecast, with housing starts in the region at an all-time low.
So, you’ve scoped out the area, you know it’s a great place to invest, then you hear a builder’s opening up their new subdivision. You know because you’
ve done your due diligence and called the local town or city hall, and you’ve spoken to the city planner; you know what’s going on.
You’ve also checked out the builder. They’re reputable; they’ve been in business for over twenty years. If you have a builder’s association or a provincial
or state registry with insured deposits, as we do here in Ontario, you can also check with those agencies. Then, you can look up the builder’s number - on
the Internet, it’s very easy to do these days. Contact the builder directly and ask to be put on their ‘first serve’ list. Or better yet, ask to sign a deal
before they open their site. If they won’t allow it, ask specific questions about the opening date and double check that with the local newspapers (they’ll
have placed an ad) and the company’s own website.
Some builders will only ask for a small deposit and the deal signed. Then you wait. You wait for a year and a half for the house to be built. Who cares?
The loss on the interest on the small deposit would be compensated with an huge increase in equity over the time period - if you’ve done your homework!