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Investing in Preconstruction Real Estate

Lately, I’ve been thinking about investing in preconstruction real estate development projects. Why, you ask? Well, my money is depreciating in value sitting in the bank – the interest its gaining is not nearly balancing out against the country’s inflation levels. It makes more financial sense to remove my capital from the bank and place it into potentially more sound investments, where it can appreciate in value, and at a very high percentage rate, at that.

Looking into Israeli pre-construction development projects I already ran into a few great options that may be worth the risk. I say risk because a lot of projects may end up getting stuck for decades for whatever reason – governmental bureaucracy, environmental complaints, law suits, and so on. As a matter of fact, the projects may never actually come to be which would mean that my entire investment would be stuck in a position of not moving forward nor backwards.

Let’s review the positives and negatives of pre-construction real estate and evaluate whether it’s a smart investment for me, and maybe for you as well!

What are pre-construction real estate projects exactly?

Pre-construction real estate is very much what it sounds like – it’s the selling of land before the actual construction begins. Rather, what is sold is the promise of an apartment, condo or house before the actual construction begins.

Builders may sell pre-construction for a variety of reasons: to get their loan sanctioned, to use the money for building, to increase pressure against local governmental bureaucracy, and so on. This type of real estate is not for the feeble; there are long waiting times and plenty of risk. The riskier the project, the more money you may stand to gain when it comes to fruition.

Apartment 3D Blueprints

Why should you consider investing in pre-construction real estate?

  • The prices are far below market value, at times even reaching less than 20% of what the home will be worth once construction is complete. (Prices depend on risk level)
  • You can get prime real estate. (I’m looking into beach front property myself)
  • Real estate is usually a sound investment – solid, and usually increasing in value.
  • Once built, you can instantly sell for a profit or rent it out.
  • You may get free upgrades with the investment.

What downside/risks are there?

  • The development may never come to be, or it could take decades to begin.
  • The government may decide to use the land for non-residential purpose, and they will not cover the real-time worth of your property.
  • You may have added expenses such as taxes to cover throughout the time you own the land. If construction is delayed for decades, you may end up spending thousands on extra costs. (Depends on the country/state)
  • You “own” the property but you can’t really do anything with it. You can’t privately decide to build on it; it remains as part of the project.
  • Some projects will make no guarantees on the size of the apartment, the amount of rooms, the view, the floor, etc.

Am I going for it? Yeah, I think so. I’m ready to invest my money into something profitable – even if the profit comes in the long-term!

Featured image courtesy of LuMaxArt.

About Ronnie E.

Ronnie is the frugal Latina of the group. Hailing from the beautiful Andes Mountains in Bolivia, she lives and breathes frugality. She loves to figure out how to spend less money and takes on the challenge of finding great deals and cheaper options every day.

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  • nancyscorner

    Well, I don’t know wouldn’t you still lose money no matter where it is. It could be a big possibility with the property all I can say is everything is a risk. I wish you luck in your project.

  • Buying off plan is not only cheaper but in some circumstances you can alter its very layout before its finished…

  • Brett

    This is all beyond my scope of knowledge- I know many people have had great success investing in all kinds of real estate though

  • Healy Harpster

    I don’t care about long-term as long as my money will grow big! I think you will are making the right choice.

  • I’m looking forward to the day when I have a little more money in my pocket so I can look into investments like this. Thanks for the information.

  • Chitownchica

    My parents bought property that they planned to have developed and build a home for us on, but it ended up in all this litigation when the city rezoned it commercial when a mall developer wanted to use it. They ended up in a 8 year legal battle and walked away with a pitance for the land which was basically taken.

    • That’s one of my biggest fears… you never know if something like this will happen in the future. I also know of someone who bought land for his children and the city decided to convert it all into a park. He took on a huge loss..

  • Courtney Pies

    I love that you include the positives as well as the downsides to investing in pre-construction. Great points!

  • JoanneGreco

    Sounds like a great investment. I have one rental property but I would like to purchase more.

  • Ave T

    I have couple of freinds who invested in preconstruction real estate their savings and in the end lost everything. They are still fighting to get their money back.

  • I have never really heard of this before. Sound like a good investment opportunity, though.

  • Since we’re not getting any younger, now is the time that we take some serious thinking about investing money for our children. Thanks very much for the informative post.

  • itscindisworld

    This definitely was very informative. I hope it works out well for you, I personally have considered investing into property here locally also to benefit my children and grandchildren in the future.

  • Born Unique

    Wishing you all the best. You have armed yourself with a lot of knowledge. Thanks for sharing.

  • Carmen’s Coupon Bog

    The downside points is what put me offs. And I am terrified of losing money.. Thank You for your information though

  • I totally agree with Carmen. I would love investment property but the thought of losing money terrifies me!
    If we were going to get something I would love to pick up a property where we want to retire then rent it out so someone else could pay for it before we were ready to renovate and move in.

  • Melanie Roberts

    I work in Real Estate for my Day job; it is a risky but good business and right now really is a good time to get in before everything gets back up and levels out.. Great post; loved reading it. Thanks for sharing

  • Danielle

    I’ve never thought about this before, thanks for the info.

  • Michael

    the real money is in commercial pre-construction, ive been in the real-estate sector for 25 years and have investments all over the world. And the west is not where to look, you want to be looking at emerging economies. For instance my latest venture is an automotive themed resort being built in Kazakhstan at the moment and I will be making close to 25% roi if not more. The project belongs though to a las vegas based company named xtreme cars and stars..check it out if its not too late.