If you’re a real estate investor, you may have heard of pre-construction condo or house flipping. The real estate term PRECONSTRUCTION refers to selling or purchasing via contracts for units not registered as real property yet. As an investment properties strategy, it can provide high returns on investment. You can flip many types of properties; however, this article is exclusive to helping you Flip properties purchased in the pre-construction phase once they are delivered. Selling a delivered property purchased in pre-construction looking for an enormous profit is not a trivial business; it can be profitable if you are well-advised.
Professional guidance will increase your odds of success and reduce your financial risk. Many variables can change throughout the real estate investment process and affect the result. Many of these are market-specific and require detailed knowledge of the specific market of interest.
For this reason, it is essential to draw up a plan from the beginning where all the steps and variables are vital in navigating the roadmap to achieve a more accurate and favorable result for the final estimate. Furthermore, this plan will allow the selection of potential properties that meet the requirements to guarantee profit at the end of the process.
Aspects To Consider Before Flipping Investment Properties
It’s possible to be successful in flipping properties if you take the time to learn how to do it the right way. And there are ways to shorten your learning curve and put safeguards in place to minimize your risks.
Qualitative Aspects
1. THE MARKET
Consider only stable and growing. We know that it is an aspect beyond our control. However, some signs allow us to evaluate the state of a given market.
What is essential is that the market remains in stable conditions until the property is ready to resale. The trading currency of the market in question is also a key factor; it is advisable to select a sector based on stable currencies with low chances of devaluation. Real Estate properties in Puerto Vallarta and the surrounding areas are US dollar-based.
2. THE DEVELOPER
The Developer’s profile is essential when considering a pre-construction investment scenario because of their track record for meeting delivery dates, product quality, and the level of coincidence between what’s promised in the pre-construction phase and what they delivered in the finished property at delivery. Therefore, it is of most importance for achieving our profitability objective.
3. THE PRODUCT
Finding the right property is one of the most challenging aspects of flipping a house. The delivered property must be appealing to the market since it will compete with other properties when completed. Know the neighborhood before getting started. The location is a vital characteristic of the product to choose; privileged areas such as Beachfront properties will always be more solid. Spend some time researching the real estate market and selecting the right investment location. The number of beds/baths must be the one sought by buyers. If the property is excellent, you can expect competition from other potential buyers.
In addition, the projected property must offer a better price-value ratio than its competitors; this will allow us to shorten the time of sale and improve our profitability. Spend your money wisely.
Properties correctly selected at the beginning could even have a purchase price higher than the Developer expected as the highest price at the beginning of the project.
4. THE REAL ESTATE AGENT
It is of great assistance to engage expert real estate agents with a recognized track record knowledgeable about the market value and developers building in the area.
Quantitative Aspects
1. TIME FOR THE INVESTMENT PROPERTY
Time will directly affect profitability, hence the importance for the Developer to deliver a quality finished product on time and for the product to be alluring so that it sells quickly. The delivery times of the finished property may vary depending on the pre-construction phase of the purchase.
2. PRICE, PRE-CONSTRUCTION DISCOUNT, AND PAYMENT TERMS
We need to have a pre-construction discount and sufficiently favorable payment terms to cover the cost of money over time and all the costs involved for acquiring the property and the subsequent resale.
Not all developers offer pre-construction discounts that make an attractively profitable resale feasible.
3. COSTS
The outlined financial plan includes the costs derived from the property sale.
These costs can be estimated and obtained from various service providers and calculate the estimated profitability.
There are many costs to consider, such as closing or deed costs, property taxes, taxes on capital gains, legal and tax advisory services, real estate resale commissions, applicable tax deductions, your time investment, of course, buying and flipping a house is more than just a financial investment, your Real Estate Advisor will follow the whole process until the pre-construction purchased unit is sold according to the plan. The real estate commission is 100% deductible from the earnings calculated.
4. RESALE PRICE
For a timely resale, the property’s resale price must be competitive, according to the value perceived by the market. Therefore, a delay in the resale date decreases profitability if you count return on investment including a time factor.
In this RESALE phase, the characteristics and prices of other resale properties available in the market will tell us how efficient we were in selecting the pre-construction property that we are going to Flip.
We will also know how stable the market has been since we decided to purchase the pre-construction property or if the market is even more favorable than it was at the time of the pre-construction property purchase.
Ideally, we shouldn’t compete with properties sold by the Developer in the same development as those sold previously. However, suppose we must compete; in that case, our resale price must be in line with our competitors within the same complex and other similar properties in the area.
Final Note for Real Estate Investors
To make your final decision, if you plan to flip a property purchased in the pre-construction phase, it is necessary to know all the details. You cannot decide to enter this business without knowing all the details.
Pre-construction condo and house flipping can be highly profitable. However, once you are ready to flip, you will also evaluate the vacation rental business and its profitability; perhaps you will decide not to Flip the property and rent it.
However, it’s possible to be successful in flipping houses if you take the time to learn how to do it the right way. An experienced MexLife Real Estate agent can guide you through this process to make the right decision.
