Pre-Construction Investments…

Beware of Potential Scams

Pre-Construction Investments – put your money down now! Get returns of 200% on your money next year! Developer will pay your payments for 4 years! Have you heard that before? I have been receiving so much hype from e-mail blasts recently, from many different sources, about pre-construction investment opportunities available through the internet I felt it was my duty to write this article.

It concerns me deeply to see some of the advertising used to attract people to these pre-construction investments. One recent e-mail stated “$50,000 -$100,000 below market value and the builder will pay your payments for 2 years.” Guaranteed equity and also a market with AT LEAST 20% appreciation? Wow, I can’t believe anyone can guarantee something like that. Will it be in writing? Will they stand behind it with their own cash?

There is something that must be said about development and how things work for developers. If the market is really strong in an area, the builder concessions and pricing are very tight. Why would a builder give a $50,000 – $100,000 discount if they could sell them all day long? Don’t you think they would keep most of that profit for themselves? Think about that for a moment! Why would they pay your payments for 2 years if the market was so good and give a huge discount? They would not think of offering that nor would they need to. In residential real estate, in a “sellers market,” do sellers knock their price down $20,000-$30,000 just because or are they getting 100% or at least very close to their asking price

Developers have a margin for profit and for the most part price their projects based on those margins. Usually when you start to see large concessions from developers it is when you must be concerned. They are trying to get rid of their inventory. In these types of markets and conditions pre-construction investments can be quite risky.

We, at Investing Tours, Inc., work very hard to get our investors a discount. Sometimes we can negotiate as much a 5% -10 % below public pricing. These substantial discounts are for a large group of buyers to buy on a tour within three days. Why the difference 5%-10% vs. $50,000 - $100,000? Because we are in an emerging market where the developers have many buyers and don’t need to negotiate much.

There are times in emerging markets where the rental rates don’t match the payments. In these cases there are times that developers will give rental concessions or lender concessions to make the investor’s pot a little sweeter.

These “amazing deal” e-mails tend to draw someone in. Many times they are in markets that are not solid and are not emerging. Please check them out carefully. Make sure that you do all of your due diligence. Don’t get drawn in and make a buying decision based on builder concessions alone. If you do, you will feel that pre-construction investing in good markets might not be right for you either. Don’t get burned.

If a deal ever sounds “too good to be true,” it probably is! Look towards a long term wealth building plan and not just a short term get rich quick scheme. There are many good and honest ways to make money. Just make sure you are working with the right people and developers when doing pre-construction investments.

© 2007 by Wendy Patton of Investing Tours, Inc. Contact us for more information on Preconstruction Investments.