Investing in Preconstruction Condos

A pre-construction condo is a condo which is sold to a real estate investor even before it has been built. A developer, who goes to a bank for a construction-loan in order to start a new condominium development, must show to the bank that the proposed development will be profitable and that the units will sell.  In order to approve the loan, most lenders require developers to pre-sell up to 50% of the units before they will lend money on the project. Preconstruction condos are those purchased by an investor or group of investors in order to help the developer to obtain financing in such situations. Usually the pre-construction condos are sold at a reduced price and sometimes with other financial incentives .i.e. closing cost credit, tax credit, and free upgrades.

Some of the most active markets for pre construction condo investors are as follows:

• All over Florida: Florida’s population is expected to double by 2030. Real estate investors are very actively buying good pre-construction condos for buy and hold strategy in Florida. There is a strong speculation among preconstruction condo investors that Florida is the next California.

• Las Vegas: During the past few years pre-construction condo investors were very active in Las Vegas market because of record appreciation in the area. The demand was not only driven by second homes and vacation homes buyers but also because baby boomers were moving in to the area for a warmer climate.