The preconstruction process is an innovative real estate investment opportunity in which you buy tomorrow's property at today's price. Preconstruction investing is a boon for investor or buyer as well as developer or builder. The biggest advantage of preconstruction process is that you can reserve your buy at discounted prices without investing a fortune. You simply have to make a small investment that is as low as 5% of total cost to reserve a unit and pay balance on achievement of different milestones. For buyer, preconstruction process provides an opportunity to seal a property deal with little margin money and achieve sizable discounts over tentative price of finished condos. For developer it is an opportunity to presale entire property even without laying a single brick and to procure a construction lending with relative ease.
In the preconstruction process, property developers place building plans of a proposed real estate venture for pre-selling. Only thing made available to buyer are architectural rendering and floor plans of condominium, town house, or single family residence. The good news is that preconstruction prices are normally at an attractive discount of proposed sale price of complete units.
In theory, buyer gets discount because they displays grit and tenacity to invest on mere paper and "air". However, in reality, they are getting discounts because are a crucial piece of puzzle for developer because pre-selling of a particular percentage of total units is a need for getting a prospective lender to fund construction process.
If you are interested in investing in preconstruction property, you can check out list of preconstruction offers available in your locality in newspapers, on Internet or with your real estate consultant; that is if you have those types of projects in your locale. When you have list, you can shortlist offers that are suitable according to your budget and needs. After that you must run a thorough check on property and developer on many issues. Certain key reasons are, going and expected cost of similar units in that locality; demand supply factors; whether units are assignable and uniqueness of property. You must also check for future or proposed development plans in vicinity to protect your view. This aspect is important because you might choose to buy an apartment in a preconstruction process at a premium due to prefect view of lake or waterfront. However, after some time you may find out that another developer is building a project, which may blind your view.
After you have satisfied yourself with suitability and pricing of condominium, you can proceed for reservation. Most preconstruction properties have a nominal reservation amount, which is normally 5-10% of total cost and can go as low as $1,000. The reservation process has a simple "Intent to Purchase Agreement" in which you hold right to first refusal. In this phase, you are safe because your money is in escrow account and you can terminate agreement without any obligation. Of course, developer is not really bound to any prices yet at this stage either so both sides are in a loose arrangement.