Pre Construction Investment by Foreign Investors

Foreign Home Buyers and Pre Construction Investment

In the past few years, the pre-construction investment by foreign investors was mainly fueled by the rock-bottom prices and a weak dollar that combined have created a feast for the cash buyers. While a large segment of these investments has been directed toward the bank-owned REO properties but some foreign investors, as absentee owners, are staying away from such properties that are in need of repair and maintenance. For those investors, the pre-construction opportunities have become the second best option in taking advantage of the currency atmosphere that makes the acquisition of these pre-construction properties a bargain for residents of EU region and other countries with the stronger currency.

The foreign pre-construction buyers are from all over the world, but we could divide them into the buyers from the neighboring countries, European countries, and the rest of the world. In the neighboring countries, the segment of the population that have the financial means to afford a property in the US are attracted to the pre-construction market for the reasons of safety, security in investment and climate. The states like Florida, California, and Texas have been a Mecca for most of the foreign home buyers.

When it comes to European pre-construction investors, besides the mentioned reasons there are also social factors that separate them from the rest of the pack. Even before the formation of the European Union, the people of Europe were accustomed to travel to the neighboring countries for their vacation. While the most European travelers speak more than one language they also feel comfortable traveling or living abroad, which in their case could be the country next door. This is in contrast to most Americans that prefer to venture around the good old USA and feel out of water in foreign countries especially if the primary language is not English. Unlike in the US that most people are limited to one or two weeks of vacation, most European enjoy at least a month vacation along with some long holidays and also prefer owning a second home instead of staying in hotels. While only in recent years, and by the influx of the retiring baby boomers, owning a second home in has become popular with American retirees, the European on the other hands have been more accustomed to that for many years.

In these challenging days for pre-construction sales, the developers need to reach out to the foreign buyers whom thanks to their strong currencies, find the US properties and prices much more attractive than the average American or South American home buyers or investors with weaker currencies. The Canadians also have been a great target for the developers in the states with a warmer climate specifically the Florida. Tapping to the foreign investors could become a survival factor for many developers in this volatile market and while most seasoned developers are doing that, the rest could reach out by contacting real estate professionals with experience in international real estate.

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Pre Construction Investments in Condo

by Hamid Hakimi | Pre Construction

Pre Construction Investments in Condo

Buying Pre-Construction Condos

Does buying a pre-construction condo make sense in today’s market? This has been the most asked questions in the recent weeks and the answer is not that complicated. To explore the opportunities in the pre-construction investments of the post-recession era, we briefly examine how the pre-construction properties could create quicker equity and how they enjoy more equity than the resale properties.

Even though the pre-construction properties historically are offered at a price range below the prices of the completed units, but there are some exceptions to the rules. For example, the condo markets that were not affected by the real estate meltdown of the last few years, like in Toronto Canada, the prices of some resale condos are the same, and sometimes even lower than the prices of the compatible pre-construction condos. Now, the question is if buying pre-construction condos in such markets are wise and how could a preconstruction investor create equity under most circumstances?

In our view, there is nothing wrong with entering into the pre-construction markets when there are no initial discounts offered by the developers. As we all know the main objective of investing in pre-construction projects is simply to acquire more equity, quicker. In a healthy market, this equity is attainable even without any initial pre-construction discounts, although having the discount wouldn’t hurt! The equity gain is reached in different ways. First, most developers will eventually adjust their pre-construction prices in order to offset the inflation. This price increase becomes like a discount for a pre-construction investor who had already locked in the initial prices.

The second way to look at the equity is through computing the total money put into a pre-construction investment against the final profit. To explain this better consider the following simple example that compares the purchase of a resale condo with the similar pre-construction condo at the same price in the same market after 3 years:

1) Resale Condo Unit= $1000,000 +

Annual market appreciation 3% $90,000 for 3 years

Total Gain $90,000

2) Pre-construction Condo $1000,000+

Annual developer’s price increase 4% $120,000+ for 3 years

Annual market appreciation 3% $90,000 for 3 years

Total gain $210,000

If the initial investment amount for the pre-construction investors is the typical 15% deposit, then by investing $150,000 he has a return of $210,000. This is a simple illustration to show the possibilities and as most seasoned pre-construction investors will tell you the 12% developer price increase in 3 years is a conservative number and attainable in most markets. In most cases there are many price hikes during the construction, which starts at a base, or the lowest price for pre-ground breaking, then an increase in time for the ground-breaking and the next increase is when the foundation is completed/ Market permitting this could continue until the completion of the project.

In another word by purchasing a pre-construction condo the investor locks the price and when the project is completed he buys it at the prices of 3 years ago and resells it at the current market value. In the above example when the investor closes on the property at the $1000,000 locked-in price, the developer is selling the exact condo for $1,210,000. In the past, we have witnessed many unforeseen factors had forced the developers to resort to substantial price increases in many pre-construction projects that were not in their initial projection. Perfect examples were the shortage of the cement or dry walls that resulted in an increase in the prices of both items which affected the developers’ costs of the construction that is eventually transferred to the home buyers. While this was a misfortune for the developers and consumers it became a windfall for the preconstruction investors.

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PreConstruction Investments

by Hamid Hakimi | Pre Construction

PreConstruction Investments

Investing in Pre-construction

In many ways, the pre-construction investments in 2015 possess the same characteristic as before the crash of the real estate market. Some parameters of how to invest in pre-construction properties might have changed but as far as the investors are concerned the foundation of the investment and the main objective remains the same. The days of the crazy, overnight price increases in the sale of the pre- construction condos might be over, but the opportunities to enjoy a good return on investment are still out there. While the seasoned pre-construction buyers need to be more vigilant in choosing the right project, the newcomers on the other hands have to do their homework by either joining a REIT with good track records or acquiring the help of a real estate professional specializing in all aspects of the pre-construction deals. In order to help both types of investors, we will attempt to share some of our experiences that we have gained with the handling of over half a billion dollars in pre-construction contracts and hope to shed some light on the risks and rewards of the investing in pre-construction projects in 2015.

First, the rules pertaining the purchase of a typical resale property would not necessarily apply to the acquisition of a pre-construction unit. Unlike a resale condo or home buyer, the main purpose for a preconstruction investor is to gain profit rather than to seek a residence, a homestead and a roof over the head. When residing in a property is the primary focus, the home buyer would look more to the commute between the residence and his work, the schooling for the children, the space, the number of the rooms and many other factors that will make them choose one home over the others. On the other hand, the preconstruction home buyer is seeking the highest return on the investment regardless of the location, size, number of the rooms or any other goodies that a typical homeowner might be interested in.

Please follow up with more upcoming articles in explaining the real difference between the resale properties or more specifically resale condominiums and pre-construction properties or pre-construction condos as well as tips on choosing the right preconstruction opportunities and more.

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New Construction Home Market

by Hamid Hakimi | Pre Construction

New Home Builders are Optimistic

Coastline Model

As one of the largest employer of the skilled and unskilled workers, the preconstruction home builders have been the backbone of the US economy on a larger scale than perhaps auto manufacturing or any other sectors in the nation. The economic meltdown had the most adverse effect in the industry that went from having lines of the buyers for the pre construction units outside their office to the fire sale of their inventory along with discounts and incentives that ate the bottom lines and forced some to the bankruptcy.

The new survey conducted by Ernst & Young, LLP meanwhile indicates the growing optimism among the home builder with a whopping 95% projecting the end of the downturn and the beginning of the profitability in 2013. According to the same report the new home builders’ concern of the past two years about the interest rate and the ability of the home buyers in obtaining loan have been diminished but they believe that they will reach the benchmark of one million home sold in 2015 or 2016 instead of once considered 2014 or 2015.

This is in line with our prediction for 2012 being a start point for new home construction and improving from there on. The only reason that 2012 could not witness better days for new home construction was the lingering foreclosure filings by the banks that came to a halt after the Robo-Signing scandals force the financial institutions to stop all filling. Absorption of the deeply discounted bank owned homes or REOs will be the deciding factor on when and how the construction of new homes would see a real start. Construction of new homes would not make any economic sense, as long as there are homes at below the market prices out there.

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Pre Construction Opportunities

by Hamid Hakimi | Pre Construction

Pre Construction Opportunities

Pre-construction Opportunities for 2015

The pre-construction real estate opportunities are growing in Port St Lucie, but look for many new construction projects to start by the next year along with great incentives for the buyers of the preconstruction units. As we reported in previous articles the construction business should get a fresh start in 2014 and improve from there on. While the foreclosure fiasco has dumped many homes in the market that are below the market value but there are still those home buyers that prefer a new home with builders warranty over the foreclosed homes that need work. One main contributing factor is the higher initial cost of today’s loans with larger down payment requirements that most consumers don’t have cash leaving little to spend on any home improvement or repairs.

As one of the hardest hit sectors during the housing industry collapse of the last decade, the construction industry and specifically the construction of single-family home were poised to make a comeback in 2014 in Port St Lucie and enjoy a steady growth in the years to come. While some of the prominent home builders have weathered the storm by converting the unsold units to rental opportunities, most have cut their expenses to the bare minimum which resulted in fueling the unemployment rate in the nation. These companies have barely made it and if lucky they might have broken even in 2011 and still trying to survive far into 2013. ALL the gloomy days, however, are coming to end and there is a new optimism in the air that although carries a cloud of cautiousness, but just the talk of the profitable 2013 is a feel good story that we have long waited for.

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How to Buy Pre Contsruction Homes

by Hamid Hakimi | Pre Construction

How to Buy Pre Contsruction Homes

Veranda Gardens Model Homes

Buying Pre-Construction Home

While many home buyers debate on buying pre-construction or settle for the purchase of existing homes, they should first weigh the pros and cons of both types of properties. Buying new homes in a today’s market has many advantages for today’s home buyers that also would help the ailing construction industry. As the novelty of buying a foreclosed home gradually fades away, the home buyers will turn to buying the hassle-free new homes, some with many free upgrades, free HOA and at a discounted price.

In the past, the home buyers and investors concentrated in the acquisition of the pre-construction units in order to receive any discounts. In the current market, however, there are more opportunities for the purchasing move-in-ready new homes but without the waiting period for the completion of the units purchased during the preconstruction. This is a sign that the smart consumers have turned from the instant gratification of the discounts offered by foreclosed homes in favor of more stable new construction homes. Most new construction homes are offered in great price structures while promising a solid equity just a few years down the road. If home buyers not in a rush they could add even more discounts and free upgrades to the already low prices of new homes by finding pre-construction opportunities. There is a peace of mind that today’s pre-construction homes offer through a built in equity along with a builder’s warranty, more energy efficient homes, and appliances. These advantages should be enough incentive for many home buyers to reignite the slumping new home construction.

There are other perks and advantages to purchasing a new home that could outscore the discounts offered by the banks for dumping their foreclosed properties. Choosing a home that you like versus a home that is cheap but doesn’t match your requirements could be enough reason to consider purchasing new homes. This option allows home buyers to choose the floor plan, the neighborhood even the safety that otherwise could be sacrificed in the name of saving a buck or two. Today’s new home construction employs the latest technologies and construction materials in building a safer home with efficiency in mind that were not available in the past.

The new codes for homes in hurricane-prone Florida have been in enforcement for many years but would not be imposed on homes that were constructed prior to these codes. There are literally thousands of these homes in the foreclosure home market. On order to perform a minor repair or alteration to the exterior of these homes, one has to go through extra expenses to comply with the required Miami-Dade County Building Codes. In some cases, the compliance and permitting could result in substantial costs and exceed the original cost of the repair.

The more serious downfall of acquiring older foreclosed homes could be the safety issue during a powerful hurricane. This is while the new homes in the State of Florida and the coastal region are constructed to withstand the force of winds in 110 and more miles per hour and some new impact windows could be resistant to missiles from the debris of up to 160 miles per hour. When it comes to a category 2 and up hurricane these perks become much more valuable than the money saved buying a home that was built prior to Hurricane Andrew, which was the start of the implementation of now famous Miami-Dade County Construction Codes.

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Pre Construction Due Diligence

by Hamid Hakimi | Pre Construction

Pre Construction Due Diligence

Pre-Construction Due Diligence Save & Exit

In today’s market, the importance of the pre-construction due diligence in choosing a right project is more important than ever. The chronic weak dollar, risky stock market, zero prime and low return on investments are the defining elements of the post real estate market crash. As we go through the recovery period we are slowly entering the new era of construction with developers facing tight lending practices and the dilemma of how to sell pre-construction units to qualify for construction loans.

While the pre-construction home buyers and investors are being ever so cautious a new wave of potential pre-construction buyers is emerging in baby boomers as the single most influential group affecting the future of the construction boom. They are bound to influence the real estate market both as the end-users or the investors. The end-users could be either a first or second home purchasers while the investors are trying to complement their retirement fund by purchasing and selling the pre-construction real estate or known as flipping.

No matter what category you belong to, just remember that even during the real estate boom a staggering 40% of preconstruction projects went bust and a number of investors lost their deposits. However the golden rule of thumbs that applied to the investors of the past still applies to today’s home buyers or investors. That golden rule of getting into pre-construction scheme still remains the same, which is nothing but a comprehensive Due Diligence Process. A good due diligence process will replace taking chances and entering the pre-construction market with a strategy to lessen the risk of any loss. That said, the question remains in how a typical pre-construction investor could conduct a due-diligence process to reduce the risk of the loss of his investment.

Historically a real estate investor either did not do any due diligence or joined a real estate group, such as a REIT, that afforded them a more professional approach to mitigating the risks in choosing a project. Working with an investment group has many other merits. Most developers tend to grant more favorable terms to a bulk buying group and the bargaining table is normally tilted more toward the investment groups than an individual buying a single unit. However in this re-emerging pre-constructions market there are not that many real estate investment groups as before and if found, they might be engaged in projects that are not a good fit for certain investors.

To fill this void for individual preconstruction purchasers we have compiled a list of the to-do items that based on our experience in both working with developers and preconstruction buyers are essential tools that will separate a seasoned pre-construction buyer from rest of the pack:

1) The Principals- The first step is to identify the main players in the project i.e.: a) Developer b) Architectural Firm c) Lending Institute d) Escrow Agent e) Marketing Group

2) Land Ownership– does the developer own the land outright or do they have the option to buy, red flag the projects that the developers don’t own the land.

3) Financial Overview- the following items are normally a tell, tell sign of what is in the future of the project:

a) How much equity does developer already have in the project

b) How much fund is dedicated to the future of the project

c) Has lending institution granted a loan commitment yet

d) What is the latest appraised value of the land

e) What terms are in place by the lender in order to secure a loan

Just remember the more skin the developer has in the project the more chance of success the project has.

4) History of the Past Projects– The list of developer’s attempted and completed projects is a good indication of their strength and discipline.

5) The specifics of the project– write down all details of the project like:

a) Price point

b) Amenities

c) number of units

d) Targeted market

Are few of important points.

6) Location, Location, Location– this rule would never fail you. If the location does not match the targeted market no matter how beautiful of a project a failure is just around the corner. If the final price of each unit is too expensive for the location, for example, finding home buyers willing to pay that will prove difficult if not impossible. Some other factors that could also influence the location of a project are: demographics, other planned projects in the area, population expansion along with job increase

7) Zoning, Permits, and Environmental Issues– If the zoning is approved for the project and what is the status of permits or if the project is in violation of EPA

8) Development Overview– Developers usually compile a comprehensive overview of their project that is not offered to pre-construction buyers like you without asking. Ask for it!

9) Due Diligence Package- one of the first phases in starting a project includes feasibility studies and economic studies that are used as a guide for the developers as well as presenting them to the financial institutions to convince them of the viability of the project. Developers have these studies in their possession, Ask for it

10) The Cardinal Sin– do not go directly to the developer without a broker. Service of a real estate professional does not cost you, use it. Locate an agent that is experienced and specialized in the sale of pre-construction properties.

11) Final steps– study all the information that you have gathered to reach your own educated conclusion.

Excellence in service and loyalty to our partners with ethical guidelines will help the pre-construction real estate investors and developers alike. The good developers always appreciate the educated consumers. Whether you are buying your first home, a vacation home or trying to take advantage of preconstruction discount opportunities as real estate investment, please contact us. During the past market, we successfully fulfilled near $500,000 in pre-construction contracts and preserved the deposits of our buyers, how many other brokers could claim that?

If you are a developer with a solid project, use our experience and let us present your project to our partners and expedite the pre-sale of required units and construction loan process.

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Existing Home Sales and Pre-Construction Sales

by Hamid Hakimi | Pre Construction

Existing Home Sales and Pre-Construction Sales

Sales of the Existing and Pre-Construction Homes

The sales of the existing and pre-construction homes have seen a noticeable jump in January 2014, mainly thanks to the increased number of cash buyers and the abundance of the rock-bottomed foreclosure and short-sale deals. the Share of combined foreclosure and short sales has hit the highest level in the past 12 months, according to National
Associations of Realtors (NAR). This trend continues all through 2011 to present with fist time and vacation home buyers entering the market in a pattern that by 2015 some markets like Miami were experiencing a shortage of inventory already.

What all this means to you and where the general economy heading all needs a closer look at all factors that should come together in order to help out the construction industry. The bad news for re-igniting of the new home construction in early 2010’s and 2011 was the increased demand for distressed properties as they are competing with the new homes and hence the construction industry. The 9% unemployment and tight credit, on the other hand, have had a negative effect also by reducing the pool of potential buyers and lowering the demands for new homes. Most economists believe that the start of the new home constructions in recent years has been instrumental in lowering the unemployment rate to below 6%.

Now, where is the good news in all this? It simply relies on the news of the increase in the sale of the existing homes, which are mainly bank-owned or short sales. The fact is that the sooner the foreclosed homes are picked up from the market the sooner the demand for construction of new homes will start. At this time, new homes can not compete with lower priced REOs and short sales. In most communities, the prices of the existing homes are a fraction of what a new home will cost and as log as this persists start of the new home construction will not make any economical sense. The fusion of cash by many REITs and foreign buyers to the stressed property market has also triggered the increased competition in grabbing these properties and eventually resulted in a hike in the sales of the existing inventory by 5.3% compared to the year before.

Another indication of a stable market is the number of the months that will take to sell the entire inventory in any given market. According to Lawrence Yun, the chief economist in NAR, the number of the months to sell current inventory in June 2015 was in pace to 5 months from 5.1 months in the prior month. As general to carry a 7 months inventory is a sign of a stable market, which makes the current 5 months rate as a positive indication of a stabilizing market and for that, this is also a good news.

The recent recession along with the increase in the cost of borrowing and unemployment are the break pads slowing down the housing industries. The same industry that triggered the recession will eventually become The Savior and although 2015 is forecasted to be a positive year but we believe it will be a constructive year laying down the foundation for a much better years for the construction industry in 2016 and continue to get even better in coming years ONLY IF we could the limit the number of the foreclosure homes.

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Reasons Invest In Pre Construction Real Estate

by Hamid Hakimi | Pre Construction

Reasons Invest In Pre Construction Real Estate

Top Ten Reasons to Invest In Pre-Construction Real Estate

As we approach the start of a new era in the construction industry, the challenges for the sales of pre-construction homes have become more evident for the developers. The developers are also facing tighter lending policies which combined with cautious investors and home buyers results in more anxiety for the developers planning to start new construction projects. Traditionally most lenders require around 50% pre-construction sales of a project as a contingency for a construction loan. To reach this threshold, the developers have to go through expenses of marketing, creating models and staffing to get ready for sales of the pre-construction homes. Additionally, they have to discount the prices in order to entice the investors and potential home buyers to purchasing preconstruction homes. The amount of the discount offered is to offsets the marketing expenses and cost of the idle capital invested in the acquisition of the land, permits and other operating overheads.

Offering discounts is a win, win situation to the developer as well as the home buyers and investors. The strategy helps the developer to reach the 50% pre-sale plateau faster while rewarding the pre-construction investors and home buyers from the discount. Besides the profit from the discount, there are many other factors that will make the purchase of pre-construction real estate a very attractive proposition for many investors:

1. Lower Prices- Although the discounts are driven from the builder’s bottom line and are an important part of the pre-construction investments, but in reality these margins are a minimal cost for the developers when compared to the cost of idle capital and marketing and sale of the pre-construction units. The home buyers and investors, on the other hand, will appreciate the built-in equity when they purchase preconstruction homes. They recognize that while any appreciation in a typical real estate investment would require a large upfront investment or payment of a mortgage for a long period of time, but in pre-construction investments they could enjoy profits with only a down-payment and in a shorter time period.

2. Lower to None Maintenance- Purchasing a new unit will require less maintenance for the first ten years of ownership than existing older homes.

3. “OPM” Other People’s Money or “Leverage”- The small amount of initial investment in a pre-construction property affords the purchaser to acquire a property of much higher value. Consider these two simple examples below on purchasing a 100,000 property:

a. Assume that an all cash purchase of a property for $100,000 brings 15% appreciations in 5 years. This will yield a $15,000 Return On Investment (ROI).

b. In the second example, we leverage the same $100,000 investment as down payment to purchase a property requiring 10% down. This will allow us to purchase a property valued at $1000,000. If we expect the same 15% ROI as the previous example, then the ROI will amount to 1000,000 x 15% = $150,000. This simple example demonstrates the power of leveraging that instead of $15,000 we could make $150,000 return o the same amount of investment.

4. Amenities- Today’s developments are designed as resort style and equipped with the state of the art fitness centers, swimming pools, and walk/bike paths in place of the shuffleboards and card tables in the clubhouses.

5. Timely Entry- This is the best time to enter the pre-construction market as we are still in the early stage of an appreciating market. The typical real estate cycles of the past decades have been 7-8 years. During this period, the home values climb up till it hits the top and reverse its course till hits the rock bottom line. Remember to always get into investing in the pre-construction market during the early and midterm stages and never during the late cycle.

6. Safety- The new construction techniques and enforcement of the more stringent local codes have resulted in better construction, which is safer during the hurricanes. This makes the newly constructed homes safer than the older units. Since the1993 Hurricane Andrew; tougher Miami-Dade Building Codes have become a guideline to many other counties and municipalities as well. The result has been a sturdier construction of new homes in Florida.

7. Energy Efficiency- T he efficiency in the construction industry has evolved into more sustainable developments that save you money day in and day out for many years to come. From construction techniques, better insulations to Star Rated Appliances with higher efficiency rates the recently constructed homes are viable when it comes to total efficiency.

8. Technology- Never before has the access to latest technologies been as important as the past two decades with the internet becoming a way of life and work. The modern constructions have adapted to this phenomena by pre-wiring the homes for the internet, alarm systems, and other must-have modern technologies.

9. Builder’s Warranty- Normally builders offer a warranty on all new home purchases, which is a piece of mind for home buyers who have gone through the dreaded purchasing a home and moving expenses.

10. Built-in Equity- From the first day of purchasing a preconstruction home an immediate equity is in place with a minimal investment and before the purchase has been completed.