Investing in Preconstruction Townhouses

Real Estate investors who cannot afford to invest in preconstruction homes because of higher price points are going for pre-construction townhouses. In fact, in some parts of the country preconstruction townhouse are preferred by investors because it’s easier to sell to the end buyer.

Below is an example of a pre-construction townhouse investment scenario:

A developer approaches a bank with a proposal for developing and building a townhouse project. The bank agrees to provide the necessary capital if the developer sells half of the townhouses in preconstruction phase i.e. before construction begins. The developer pre-sells half the units to pre-construction townhouse investors and makes the bank happy. At the same time the investors who bought the preconstruction townhouses are happy because they got 10% discount on the purchase price.  Bank finances the developer to complete the construction of the project.

After the construction is complete, the pre-construction townhouse investor has multiple choices to exit. First, the preconstruction investor can sell the townhouse to an end buyer at full price. The profit in this case would be 10% plus any appreciation which may have occurred during the construction phase. Second, the pre-construction investor can keep the townhouse and rent the property. This way the leave the equity in the townhouse and use the rental income to build equity.

Townhouses put home ownership within the reach of most people in the United States. That’s the reason why townhouses have become so popular throughout the United States as less expensive alternative to detached houses. With such a big fraction of buyers in the market looking for townhouses, the preconstruction investor is pretty safe when it comes time to exit their investment and cash out.