Investing in pre-construction - Posted by Mike

Posted by Brent_IL on August 29, 2003 at 19:55:29:

I think you may get more help on the legal board. Contract law is such that once the parties mutually agree to something that isn’t illegal, it’s difficult to make changes without the other parties’ consent.

You might look into getting written permission to have the contract placed in trust and then assigning the beneficial interest. Or ask the seller to take title in your corporation (assuming that corp. start-ups are inexpensive in your state) and sell the stock to another party. Never insinuate that you intend to sell. Estate planning is always a plausible reason.

Investigate how much the additional costs would be for a double close. There are additional costs, but if you do it the same day, the title insurance binder can be transferred for less cost than a new policy, and the taxes are the same, so usually what you’re paying extra is title company charges and legal fees.

Again, try the legal board.

Investing in pre-construction - Posted by Mike

Posted by Mike on August 27, 2003 at 13:13:16:

I bought my first rental property a few months ago and have tenants but now I am looking for a quicker return on investment to supplement my rental property. I am looking at purchasing a condo that is part of a downtown development in a Chicago suburb and want to get others experience with this type of investing. They started with 48 units 2 months ago and only have 11 left. The close will not be until next fall ('04) Do the builders typically buy it back from you at a later date if they have interested buyers or do you have to close on the purchase, place it for sale and then close on the sale? I am trying to avoid closing costs to maximize the profit. Are there any restrictions to putting down earnest money with the intentions of selling the unit prior to close? If I end up having to close on the property to list it how will lenders view this if I have a owner occupied residenced mortgaged as well?
Any help or resources you can direct me towards is very much appreciated.

Re: Investing in pre-construction - Posted by Joseph Zimny

Posted by Joseph Zimny on August 27, 2003 at 23:13:21:


I prefer to invest in new construction but Brent is right. It is best to buy in early. You might try to get at least a few concessions from the developer though. My experience has been that once the property is handed over there will be a 6-9 month period (in my market, at least) where a whole new crop of buyers appear. These are the buyers who want to buy new construction and live in a NEW place, but who don’t want to buy in early. Don’t ask me why, but I tend to believe they’re more willing to pay the higher price in order to move in immediately.

Although this technique (buy new, await handover, sell 6 months or so out) isn’t technically a ‘flip’, it has some characteristics of the flip and has yielded solid returns for me.

You will want to ensure that the location is a good one. Which area of south Chicago are you talking about?


Re: Investing in pre-construction - Posted by Brent_IL

Posted by Brent_IL on August 27, 2003 at 20:19:46:

I don?t like condos because I feel that too many things are outside of my control, so this is somewhat biased, but are, I believe, reliable.

  • You?re on the wrong end of the marketing effort. When you want to follow this kind of plan, you should buy one of the first units for sale. This the most probable time for developer to offer concessions because they want to reduce the carrying costs for the project. The builder is doing the marketing. The last units sold represent the developer?s profit because he had to pay everyone else. Now, he wants to maximize his profits.

  • The builders will not buy back your unit. They will sell another one in inventory. They?ve already sold your unit to you. Why backtrack?

  • There are no restrictions to selling your interest, but there may be other restrictions, e.g. must be sold to an owner-occupier.

  • Lenders will view this as an investment in a residential real estate rental.

Re: Investing in pre-construction - Posted by Mike

Posted by Mike on August 28, 2003 at 13:01:47:

Thanks for taking the time to respond Joe.
Like my follow up post to Alex the numbers aren’t working for me, unless I am missing something, this vehicle won’t work in my situation. And in your example above regarding holding it for an additional 6-9 months after close seems to me like I would lose even a greater amount because I would incur the mortgage payments expense for the 6-9 months.
I am really trying to sort this out because I thought there is profit potential with this vehicle.
Thanks for your thoughts again,

Re: Investing in pre-construction - Posted by Alexander Manuel

Posted by Alexander Manuel on August 29, 2003 at 18:13:22:

Hello Brent:

I was wondering if you could help me clarify the: “There are no restrictions to selling your interest,” part of your post since it can help me determine my options.

I currently have a pre-construction property under contract for $125K that has gone up to $140K in the past 6 months. I would like to “sell my interest” to someone by assigning the contract, but the developer has a “non-assignability” clause in the contract.

Is there a way I can legally sell my interest without violating the non-assignabilty clause and avoid a double-close? I’ll be getting the property in June of next year and expect it will appreciate more by then.

Someone suggested I “add” my buyer to the contract, and then “remove” myself, but wasn’t too specific on the mechanics of doing this (plus I believe the seller would need to agree to it anyway).

Any ideas on how to best cash out and avoid closing costs entirely?


Alexander Manuel

Re: Investing in pre-construction - Posted by Mike

Posted by Mike on August 28, 2003 at 10:57:00:

Brent- I agree with your condo comment but I am at the very beggining of my investment life and condos are affordable for me now. Hopefully after a few transactions I can move up but now my options are somewhat limited. I will plan better and scout out future developments so I can get in at the lowest possible price. Any suggestions on how to negotiate the best price? Have you found that like any sale the price is negotiable?