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.

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.