Florida Pre-Construction Real Estate

A Guide for the Conservative Real Estate Investor

You can put $5,000 down to build a house and have $36,000 or more of equity before they even start construction!

What is Florida Pre-Construction?

I frequently will get calls that go something like this: "I want to buy into a house or condo that is not even built yet and the public has not even seen. I want to put down a deposit and a few months later I want to assign it to someone else at a profit without ever even closing on it."

Pilgrim, you better get some fresh air because the fumes have obviously clouded your brain. Those days are over. The fast flipping, last one holding the property is screwed days are now behind us. But, dry your tears because you never needed to trade wildly to make money in the first place.

I first need to confess something to you. I use the word "pre-construction" because everybody wants to hear it. Also, it does not hurt me in the search engines when you go to look for it. But the term can mean a lot of different things. So, when I use it, I mean that you are building a a home on speculation with the intent of selling it when it is complete for a profit. Obviously, anything you buy that is not complete is preconstruction.

Where Can I Find Florida Pre-Construction Opportunities?

The short answer is everywhere. But, this not the question you need to ask. There are many preconstruction opportunities that will not yield much of a profit or any profit at all for quite some time. You have to look at many other factors. Let me review a few of them for you.

1. Does the developer allow you to sell or rent the home upon completion? Most of the larger developers will not permit you to sell the house unless you live in it for a year or more. Some will prohibit rentals as well.

2. Is there a strong, indentifiable trend of growth in the area?

3. Is the market saturated with investors?

4. How much do I have to put down and will I have to pay interest out during the construction?

5. If this is a second or retirement home area, are there recreational activities nearby?

6. Is there a reasonable infrastructure in the area, including hospitals, shopping, restaurants, schools, etc.

So, the old adage of location, location, location still holds true. The average investor does not have the time or resources to gather a current snapshot of an area. That is why you use a professional. It also might interest you to know that builders do not sell homes directly to consumers for any less than they will through an agent. They just keep more of the profit. In other words, you might has well use an experienced realtor.

> Can you look at aerial maps of an area and spot problems?
> Can you look at a lot and know how much it will cost to build on it?
> Are you aware of all of the environmental problems that can you can face?

The point I am trying to make is that you can make a lot of money in a relatively short period of time with preconstruction homes. But, you should have someone guiding you. This is what we do for a living. We work with multiple builders, negotiate with lenders and fight with appraisers.

Pre-Construction with 100% Financing - How We Do It

The late night infomercial talks about no money down investing. Forgive me, but that is a lot of crap. If you have no money and lousy credit I really can't help you. If your plan is to max out your credit cards or take cash out at closing, you need to find someone else to work with. I am hamstrung with a conscience and cannot do that to you.

But, you can build a spec home for resale or rental with very little down. If you have good credit (or can partner with someone who does) you can often build a home worth between $200,000 and $400,000 for less than $5,000 total out of pocket.

Want to know how we do it? We have no secrets here and trust me, this is not rocket science.

When I help you purchase a spec (pre-construction) home, I make sure that before the foundation is poured or a building permit is pulled, the house appraises for 110% or more of its purchase price. So, a $200,000 home will appraise out at $220,000 from day one.

The bank is loaning you money to buy the lot and to build the house while you only put down about 2% to 3% of the cost. The rest of the risk is being taken by someone else. Ever hear of the expression using OPM - Other People's Money. Well that is what you are doing. You got to love it.

Example: Last week we closed a house for a client who put down about $4,000. The house, lot, financing costs and construction interest came to $279,000. The appraisal came in at $315,000 from our most conservative appraiser. The client has $36,000 of "paper" equity in the home.

Let me say this again. They put down $4,000 to build a home worth $315,000. A year later, when the home is compete, even figuring in a market that goes completely into the toilet, the house should appraise for at least $350,000. Can it be worth more? Of course it can. Can it be worth a less? Definitely. But, when someone puts down $4,000 and makes anywhere from $10,000 to $50,000 in profit in a year or so, I consider it a great investment.

Pre-Construction with Less than Perfect Credit

I get plenty of calls from individuals who desperately want to invest in real estate but do not have very good credit. We can handle it a few different ways.

1. I can get you a construction loan but you might need to come up with more of a down payment.

2. There are many investors who started to build a spec home a number of months ago and now wish to sell it before it is completed. They cannot actually sell it at this stage but you can option to purchase it at a fixed price.

The loans on completed homes are much easier to obtain than the construction to permanent loans. If your goal is to rent the house out for a year or two, it is a great way to get into real estate investing regardless of your credit rating.

3. Partnering - There is nothing wrong with partnering with a friend or family member who has better credit than you do. Just be sure you are in agreement about what you will do with the house, how long you will hold it, etc.

Current 100% Loan Program - What Do You Look For?

Here is what I like to see to get you 100% financing.

1. You should have a credit score of around 700. If it is less we still might be able to do something. In certain instances I can go down to a 660.

2. The lenders want to see a source of income. If you are retired and have a regular retirement income that is fine.

3. The lender also likes to see at least two years of rent or mortgage history. If you have lived with your mother or boyfriend or have been incarcerated for the last two years we may have a problem. Again, each case is different and I need to review it on a case by case basis.

That's it. It is really not too difficult. I do not like to take on investors who have no reserve capital. So, if your life savings to date is $5,000 and there is not other source of funds, I would rather you wait a little while and build up a little more savings. You can find plenty of realtors on the Internet who will let you invest. But, my picture has never appeared on the wall in the post office.

Where Are We Building?

Presently, we have construction to permanent as well as 2nd home loans that require very little out of pocket cash in Ocala, Mt. Dora and Punta Gorda. For all practical purposes, we can do these loans just about anywhere in the state.

The leverage on these loans is remarkable. This is the way to invest in real estate. Call me for information at 954-255-5056 or Click Here for our contact form and we will contact you.

You do not have to be the first in line to make money in pre-construction. It is great to get in early on a new project. Sometimes we have the opportunity to sell a project before the sales office opens to the general public. But, even if you are not the first on line, the right property can still appreciate significantly in the next few years. In other words, you need to evaluate other factors beyond price to make the right choices. - Are they building other developments in the area and if so, how are they priced? - Are there schools nearby? - Is the economy in the area growing? - If you are going to rent it out, what are the rents like and how long does it take to find a tenant? - Is it a reasonable commute to the business districts? Just to name a few. You should not dismiss a property because someone bought there six months ago and paid less than you. If the house started at $220K when first available and you would have to pay $240K, you might find that the area is appreciating at a steady clip and new developments will be going in nearby starting at $275K. Two years from now you might get $300K for the house. It would have been nice to have gotten in a little earlier, but it was still a great deal.

Home | Pre-Construction | Condo Conversions | Investing in Florida Land | Spec Houses | Florida Pre-Construction | Florida Condominiums | Mortgages | 1031 Exchanges | Real Estate IRA | Being a Landlord | Cape Coral Real Estate | Coral Springs Real Estate | Parkland Real Estate | Fort Lauderdale | Port St. Lucie Real Estate | Ocala Real Estate Investments | Lehigh Acres | Wilton Manor | Newsletter | Links | About | Contact Us |

The information on this web site is provided as a guide for general informational purposes only and is not intended to be tax or legal advice. It is deemed reliable but not guaranteed. Please consult with your own attorney, tax advisor and/or accountant for specific advice. Martin Unger is a licensed sales associate in the state of Florida and works with London Realty Corp.