Hello,

In your last lesson we discussed how to protect yourself from declining real estate values and dishonest developers.

This lesson will focus on how you can invest and profit without ever taking possession of the property.

Deadly Mistake Number 7:
Investing when the developer requires you to
take possession before reselling

Unless you are buying pre-construction with the intention of holding the property for personal use or long-term appreciation, the last thing you should do is agree to close on the unit when it is completed.

95 percent of the time, as an individual buyer, the developer will require that you close on the units you purchase by financing them after construction is finished. As an investor, it makes much more sense to resell during construction to avoid the time and expense of getting financed.

Once you close, if you are using a lender to finance the purchase (as most people do), you will likely be subject to stiff prepayment penalties on your new mortgage...if you pay it off in the first 12 months...not to mention closing costs and the burden of the monthly payment, property taxes, association fees, etc.

In addition, as a real estate investor, the more property you own...the more difficult it becomes to qualify for additional financing for your next investment. By selling during construction you can buy more properties without the worries of hurting your credit score.

Developers intend to make the majority of their profits on the sale of the second half of the units they sell once construction has started. They certainly are not interested in having to compete with you when they are still selling their own units.

For this reason and other reasons related to lending requirements, most developers will prohibit investors from reselling until after they have closed on their units...sometimes six to 12 months after closing. If they do allow reselling during the construction phase, they will typically impose significant fees and penalties to investors who won't wait until after the project is completed.

There is little you can do about this if you are buying as an individual. However, if you are part of a buying group who is taking a block of units, there is no reason you shouldn't be able to get the developer to make concessions on this point.

You should also make sure the developer is not imposing any fees or penalties for reselling during the construction process. Most developers will try to charge you a percentage of the resale price (often five or 10 percent) of your units or impose a flat penalty. Don't let them.

Our investment group is currently requiring that all developers not only agree to let us resell during construction...but we also require that they find the buyers for us.

In the history of our group concept, not a single partner has ever been required to go to closing on a single unit. Developers are required to resell our units on a first out basis. This means that once we have all our deposits in escrow and the construction loan has been acquired, the developer must stop selling the remaining units in the building and resell all of ours first...at a premium price, of course.

In addition, we require that the developer cover at least half of the costs associated with finding the new buyer (real estate commissions). In exchange for this service, we will allow the developer to share a portion of the appreciated value of the units when they are sold...if there is any.

By offering the developer a piece of the appreciation it becomes a total win-win. The goal of a group negotiation is not to take advantage of the developer, but rather to partner with and help the developer.

The last thing our developers want is for us to mortgage our units. What they really want is for us to make fat profits and buy 25 to 50 percent of their next project. See why it works?

Because our closing risk is very limited, we are able to comfortably invest in numerous properties at the same time...getting greater diversification.

Never buy pre-construction unless the developer will allow you to resell before closing...period!

In the next lesson we'll discuss project timelines and how to make sure you don't get stuck if the project is delayed.

Feel free to call me anytime. We don't sell any products or seminar tickets. We're a private investment group committed to education and partnership. Our purpose is to provide you with a comprehensive education so you can properly invest in what we believe to be the greatest opportunity anywhere for intelligent investors...pre-construction real estate.

Respectfully,


(847)793-0146
Joint Venture Partner
Senior Executive Advisor, BPV
Founder, PreConstructionSecrets.com
President, Freedom By Design, Inc.

P.S. To regain access to your 12 page report and the pre-construction audio explaining the details of our investing club, simply click here.

P.P.S. If you are a real estate developer or know developers who are looking for project funding, please give me a call. Our buying club may be interested in acquiring a large percentage of your pre-construction units.

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