Preconstruction investing is essentially buying property before it is built. As an investor, your intention is to make a profit on the appreciation value between the time you lock in your price and the time construction is completed. Before you invest in preconstruction real estate, you will need to understand the process of buying the property.

The reservation stage

The first stage of preconstruction investment is the reservation stage. This is where you deposit a relatively small amount (5-20%) as a show of interest in buying the unit. The reservation is non-binding on the part of the developer and the investor. The developer can choose to raise the price. The investor can choose not to purchase the property and get his full deposit back. Or the developer may call off construction for whatever reason, and the investor has no recourse except to get the deposit back. During the reservation, the investor has no binding right to sell the property.

During the preconstruction reservation stage, the developer keeps your deposit while he gets the necessary financing, approvals, permits, and so on. Making arrangements can take a long time, and this delay can affect the price of the unit. Property values may rise. Construction costs, too, may go up. In that case, the developer may increase the asking price for the units to current market value. If you were expecting to pay a certain price based on your reservation, you could be in for a shock when the actual purchase price turns out to be much higher. It’s best to anticipate this kind of price jump when deciding if a preconstruction deal is worthwhile. Remember, at the reservation stage you really have nothing.

The hard contract stage

The next stage of the preconstruction purchase is the hard contract stage. When the developer is ready to start construction, you put down 5-25% of the asking price and sign a contract that commits you to purchase the property. The developer can’t increase the price after this, and you are obligated to buy the property upon completion or else forfeit the money you’ve deposited. This is the stage that makes inexperienced investors nervous. You’re committing to the investment and your money is on the line. However, if you’ve checked out the preconstruction investment thoroughly and planned an exit strategy that will minimize your potential losses, then you should feel confident about your decision.

After signing the contract, you may wish to “flip” the property. This means you assign your rights to purchase the property to another buyer, making a profit by doing so. If this is your intention, make sure you know in advance how the assignment will occur and when monies will be transferred. Many developers will not permit the assignment of a contract.

The closing stage

The closing stage is where you complete the purchase of the unit. You need to have financing for the balance of the price as well as closing costs. If you choose not to buy the property, you lose your down payment. Once the property is closed, you own it and you are now responsible for paying the mortgage.

To sum up, the reservation stage involves an expression of interest and a small, refundable deposit. The contract stage requires a commitment and an additional down payment. And finally, the closing stage is where you have to come up with the full purchase price or forfeit your down payment. By performing your due diligence and anticipating the pitfalls, you will greatly improve your chances of making a successful and profitable preconstruction investment.

FREE VIDEO AND EMAIL COURSE - Get the expert advice you need to skyrocket your profits from preconstruction investment Visit http://www.ProfitablePreconstruction.com for essential information before you invest.