Pre-construction investment can provide an opportunity for real estate investors and home buyers to get a foothold in the market before its built and increase returns on investment. However, investing in pre-construction also comes with risks, including uncertainty over completion dates, development delays, and construction disruptions. Therefore, opting for an exit strategy in pre-construction investments is crucial to minimize risks and to ensure profitability. In this blog post, we will discuss the various exit strategies for pre-construction investors and the importance of planning ahead.
Selling Upon Completion
One of the most popular exit strategies among pre-construction investors is to sell the property once it is completed. The advantage of this strategy is that it can offer high returns on investment, as the property’s value may increase once it is finished, and the investor can analyze the current market conditions and list the property at an appropriate price. However, before committing to this strategy, investors must ensure that the property’s potential selling price covers all the costs incurred during pre-construction, such as down payment, mortgage payments, interest rates, closing costs, and property taxes.
Renting Out the Property
Another common exit strategy for pre-construction investors is to rent out the property once it is completed. This strategy enables an investor to generate rental income, repay the mortgage, and still profit from the property’s appreciated value. However, before renting out the property, it is essential to research and analyze the market rental rates in the area and calculate the cash flow of the investment. Also, pre-construction developers often provide specific regulations for renting, such as minimum rental periods, management fees, and rental restrictions, which investors must consider before opting for this strategy.
Holding onto the property
Sometimes, an investor may decide to hold onto the property for a longer period of time before selling. This can be a good option if the market conditions aren’t favorable for selling, or if the investor believes that the property’s value will increase over time. However, it’s important to factor in the costs of holding onto the property, such as property taxes, maintenance costs, and mortgage payments.
Selling before completion
Another option for pre-construction investors is to sell the property before it’s even been built. This can be a good option if the investor has secured the property at a good price and is confident that the property’s value will increase by the time it’s completed. However, it’s important to be aware of the risks involved, such as the potential for the property not being completed on time, or the market conditions changing.
Pre-construction investments can be a great way to secure a good deal on a property, but it’s important to plan ahead and have an exit strategy in place. Whether you choose to sell upon completion, rent out the property, hold onto it for a longer period of time, or pursue an alternative exit strategy, it’s important to have a good understanding of the local real estate market and to factor in all the costs involved. By planning ahead and being informed, pre-construction investments can offer a great return on investment for savvy investors.