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.

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Pre Construction Investments

by Hamid Hakimi | Pre Construction

Pre Construction Investments

preconstruction_condos Pre-Construction Investment in Residential Properties

The advance sales of the pre-construction units are the biggest hurdle for most developers planning to obtain construction loans from financial institutions. The typical requirements to start a construction loan process is owning the land, having all permits in place and sell a predetermined number of the pre-construction homes prior to underwriting the loan. With lenders acting more cautious than ever, the developers not only are scrutinized to qualify for a construction based on their creditworthiness but also have to create a sales force, build models and advertise to sell the preconstruction units. To add to their problems is the lack of confidence by the preconstruction investors who are walking scared after the fiasco of the last crash of the real estate market.

As one of the stronger companies that have survived the ups and downs of the real estate market, we are trying to create a sales solution for developers of new residential construction as well as opportunities for pre-construction home buyers and investors. We recognize the challenging times we face in managing the relationships with uncertain investors as well as the anxious developers. We also believe that only hard work along with integrity is the only route for better days ahead. We know that the days of flipping pre-construction contracts are long over. Today’s purchasers are more interested in the quality of the development and the discount margins than a short term gain of crazy margins due to atypical increases in home prices.

In order to resume offering pre-construction opportunities to savvy investors while creating sales solutions to developers, we are looking for sound pre-construction projects to present to our past and present investors. To achieve this, we have completed a highly disciplined due diligence process in choosing our developers in order to ensure the integrity of the project along with the true market value of the units and the discount margins being offered. For further information please contact Hamid at info@portstlucie.city

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Luxury Homes Pre-Construction Opportunities

by Hamid Hakimi | Pre Construction

Luxury Homes Pre-Construction Opportunities

Pre-Construction Opportunities in the Luxury Home Market

The pre-construction opportunities in the luxury home market will require a more sophisticated buyer and a thorough due-diligence process. The preconstruction luxury property market deals with buyers with both financial means, knowledge of the market and discriminating taste. This sector of the real estate market is normally serviced by the developers and real estate companies who are dedicated to the construction and sales of luxury homes. There are many large and small real estate firms specializing in sales of luxury properties in the US and many other countries internationally. As an experienced real estate team with luxury projects and affiliates in US, Europe, and other international destinations we have been trusted by many developers and homeowners alike for over 13 years. As a member of International Consortium of Real Estate Associations (ICREA), we have the advantage of working with international real estate professionals and their buyers to market your luxury homes to a wider range of audiences. The designation of Transnational Referral Certification (TRC) offered only to the ICREA members along with the privilege of access to market your home in their top ranked website www.worldproperties.com.

We showcase preconstruction luxury homes as well as the ready-to-move-in builder’s model and resale opportunities throughout many national and international websites that cater to luxury single-family homes and condominiums. Buying resale luxury homes offers immediate access to the property with many luxury amenities already in place. The pre-construction homes, on the other hand, present the choice of custom-designing prior to the construction of your home or condo along with builder’s incentives.

Regardless of resale or preconstruction purchase of luxury homes, when considering investment in the high-end homes market take the extra steps and do your due diligence as you would in any other investments. The mere fact that there is a big name attached to a project does not necessarily guarantee the success of the project. Just ask hundreds of investors who lost millions of dollars in deposits in the past few years in some projects sanctioned by some of the biggest names in the industry nationwide. Contact the real estate professionals in our team to assist you in buying or selling luxury homes and we’ll walk you through the due diligence, inspection, appraisal and contract to close process.

For developers of luxury homes, we are currently compiling an exciting list of luxury properties and invite developers to join us to market their luxury developments to national and international homebuyers. If you are looking to buy or build your dream home, please contact us for a list of developers specialized in the construction of luxury homes.

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Pre-Construction Risks

by Hamid Hakimi | Pre Construction

How to Buy Pre-Construction Properties

This is a guide on how to buy pre-construction properties in the right time and what to do to eliminate the risks associated with such transactions. In this article, we discuss the differences between the two major contracts; the Builders Contract and the Real Estate Purchase and Sale Contracts and when to use Realtors or real estate attorneys.

Real Estate Sales and Purchase Contracts vs Builders’ Contracts

While the Real Estate Sales and Purchase Contracts used for resale of existing homes, almost all new and pre-construction sales contracts are “Builders’ Contracts”. The typical real estate sales contracts for resale transactions are normally sanctioned by a real estate association. The most significant difference between the two contracts is the fact that the real estate sales contracts are drafted to protect the buyers, however, the builder’s contracts drafted with the developers benefits in mind.

Hiring a real estate professional who is familiar with both types of contracts is beneficial to the homebuyers in many ways. Such professionals could easily identify any pitfalls in the Builders’ Contracts that might work against the buyers’ interests. The scope of a Real Estate Brokers work varies based on the state the property is located. In some states, Realtors cannot become involved in the writing of real estate purchase contracts and their role is limited to finding and showing properties while in others, like Florida, any Realtor is capable of drafting the purchase contract and follow up with the process till the closing. There are other entities to assist the buyers such as real estate attorneys who normally do not get involved in finding and showing properties until the draft of the initial purchase offer becomes necessary.

There are many reasons to use either a Realtor or an attorney or both. Most simple purchase contracts are easily handled by Realtors and title companies. Most of the brokers and real estate professionals are compensated by sellers while attorneys might charge the buyers for their services. Use of attorneys in more complicated real estate transactions such as estates and trusts are beneficial to the sellers. An experienced and educated Realtor could even help you with specialized transactions such as 1031 exchange without any additional costs to you.

No matter which state or what type of service applies to you, just make sure to use the assistance of a real estate professional and don’t walk unarmed to the developer’s office and start checking out the models. This makes even more sense when, as a buyer, the help you’re getting from the real estate broker is not costing you a dime. Just think, if the builders have their attorneys on their side to protect their benefits, who will look after yours?

We hope these series of articles serve as a useful guide to buying preconstruction properties and aid the home buyers and investors in reducing the risks associated with purchasing of pre-construction properties. This is a follow-up to our other articles in advising buyers in how to buy pre-construction properties and what to look into when it comes to choosing a developer including the purchase contract and other terms and conditions set by developers. The recently published articles on the importance of due diligence and other facts about preconstruction acquisitions were intended to assist and educate potential home buyers and investors in the market for the purchase of pre-construction properties.

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Pre-Construction Risks

Real Estate Investment Trust REIT

by Hamid Hakimi | Pre Construction

Real Estate Investment Trust REIT

REIT Real Estate Investment Trust

Contrary to what Many investors think the REITs or Real Estate Investment Trusts are not the phenomena surfaced during the recent real estate booms and the REIT platform is over a century old. Although many REITs and other investment clubs popped up during 1990’s and recently 2005-2007 period but the history takes REITs dates all the way back to 1880’s when it was used as a tax shelter against double-taxation on corporate and individuals. The international Real Estate Investments Trusts, on the other hand, are fairly new and are different in qualification standards by each country. Modern countries like Canada or England have adopted the regulation for Real Estate Investment Trusts (REIT) as recent as 2007 in England.

The tax benefits, power buying and expert management of these Trusts has attracted investors since 1990. Lee A. Chilcote from Arter & Hadden estimates the market expansion from $5.5 Billion in 1990 to over $140 Billion in 1998. According to REIT.Com, all REITs index in was up by 28% in 2010, which easily surpassed the broader market index when S&P 500 saw an increase of 15.1 and NASDAQ Composite was up 16.1%.