Posted by William Bronchick on March 23, 2011 at 10:01:25:
I know plenty of people who bought and the market went
flat, no profit.
Preconstruction investing and legal issues - Posted by Frank
Posted by Frank on March 22, 2011 at 12:29:19:
I wanted to get Bill or John’s view on Preconstruction investing and the legal issues to consider. My wife and I are looking into preconstruction, namely the Katrina hit areas seem to have the most opportunities. I have read some bad stories about investors and preconstruction deals (i.e. condo said to be worth $120K but investors let in to buy them at $80K preconstruction). Then later when the project is completed those investors find out their units are only worth $80-$85K and the $120K figure seems to be nowhere in site. Is there any way to protect yourself going into this - if at all possible?
Preconstruction investing and legal issues - Posted by Bill H
Posted by Bill H on April 04, 2011 at 18:35:15:
Frank, I am in the Biloxi/Gulfport area of MS. There are lots and lots of properties available for lots less than construction costs.
For instance, I bought a 3 Bedroom, 3 bath, 1512 sqft townhouse condo, tile in living room, kitchen, baths, granite counter tops, fully complete with appliances, gated community, with pool,built after Katrina, for about 1/3 of its original sale price in 2006.
Check the MLS for this area and you will be amazed at the stuff you can get.
When will it start to improve, when ever the insurance costs and other fees start to decline. Wind and Flood insurance cost an arm and a leg. Wind alone is over $4,800 for me in my little condo. I passed on flood, figured if the water got that deep I’d sell aligator sight seeing trips or something.
Good Luck,
Bill H
Re: Preconstruction investing and legal issues - Posted by William Bronchick
Posted by William Bronchick on March 22, 2011 at 17:21:32:
On the non-legal side, PC investing does not fit a good model of smart investing because it’s
totally dependent on one thing — appreciation.
There are five factors to consider (“CLEAR”)
Cash flow
Leverage
Equity
Appreciation
Risk
In my humble opinion, appreciation is the least of the five factors to consider, and it should
always be icing on the cake. The other four are more important.
In terms of legal protection, you can only lose what you put up. So, typically it’s a 1-5%
“reservation” fee, then when the project is substantially completed you put up more, then when
complete you have to close.
Too many people ended up closing in the crash of recent years because they were too proud or
stubborn to walk away from their earnest money. Mistake. Big mistake.
In terms of protection you can add a clause that says that in the event the property does not
appraise for X by closing you get all your money back. But half of these builders filed
bankruptcy and screwed people anyway.
Re: Preconstruction investing and legal issues - Posted by Frank
Posted by Frank on March 23, 2011 at 10:00:34:
Thanks for the info Bill. I did one of those Justin Ryan / Wendy Patton bootcamps about 4 years ago. Paid I think around $3500 for a bus tour down in Biloxi. Fun filled several days looking at preconstruction housing sites and hearing all the upsides (i.e. tax breaks etc). For some reason I didn’t buy anything - something didn’t feel right and this was before the crash. So it was a wasted $3500 out of pocket. But I was always curious to hear how all the others did down there as well as the New Orleans area. I read a couple bad stories but overall have noticed that the whole preconstruction rally has gone silent in recent years.