New construction is beginning to grow again and innovative new concepts are attracting a lot of attention in the media. So is it time real estate investors transitioned their focus to shiny new condo towers and new luxury homes?
Just because some buyers are being drawn to new construction developments doesn’t automatically mean these properties are good choices for real estate investors, especially since most are sitting way at the top of the market if not priced above it.
The solo exception here may be when second or third phases and releases stages are in the works with guaranteed price increases which guarantee profits.
What about building or becoming a developer?
Many individuals and real estate investors dream of becoming builders though the reality is rarely as profitable as many believe it to be and often delivers far inferior returns when compared to flipping existing homes. Plus there is the increased risk, longer cash cycles and headaches to consider. If you want to build custom homes do it for fun but if you are after profits then carefully weigh your options before breaking out the shovels.
However, there is a new real estate trend emerging which poses some interesting opportunities for innovative real estate investors who love thinking big…
Developers rolling out plans for new luxury condos are now switching to a buyer financed business model. Due to an inability to obtain financing themselves they are having buyers put up all of the cash for construction in installments. Some of these projects are incredibly seductive with high-tech features and luxury services but the new model means an almost ridiculous amount of risk for buyers. They literally have no protection of security if the developer goes bust or decides the project is no longer worth their time.
On the other hand for forward thinking real estate investors who love pushing the envelope this makes becoming a developer and creating a landmark building of their own a lot easier. However, before you dive in make sure you are aware of all costs involved, have the budget for some serious marketing and legal assistance and have somewhere to hide if it all goes south as you can bet buyers losing six figure sums might be quite happy to shell out an extra $10k to have you assassinated.
Again, be sure to weigh all factors before launching a new real estate investing strategy from the upfront cash to time required, length of the cash flow cycle and real net profits. The bottom line is that it is often difficult to beat old fashioned flipping houses.