Buying raw land will also require a large amount of due-diligence to make sure the land is surveyed properly, free of criminal activity (like drug growers or poaching), and to work out local regulations governing land use. [1] X Research source Developers generally purchase large land sites for development. In most cases, the project is developed with streets and utilities, the sold to individual builders who then construct houses for sale or rent to home buyers or renters. As each stage of development is completed, the cost of the property generally increases.
Builders sometimes need the money to complete their project on time. Selling preconstruction real estate gets them quick cash without having to worry about their credit or accruing interest on a loan. Other times, they may need to have outside investors like you to get approved for a loan.
The competition will depend upon the size of a development and its use. For example, commercial developments for offices, apartments, and retail sites can be very expensive when compared to a single, undeveloped residential lot.
By nature, preconstruction real estate requires you to do some speculation about the market value of the property not now, but after completion. However, keep in mind that you can’t predict something cataclysmic like a housing market crash, which would likely mean that you lose your investment. You may have to choose between signing a contract that means losing a deposit if the builder has to pull the plug, and walking away. This is a big reason why preconstruction real estate is such a risky investment. Look for an experienced, reputable builder. The chances of a seasoned company calling off a construction problem are much lower than with a hot startup. [3] X Research source As an investor, look for a builder that will contract your house or buy your lot to construct a house to sell. Generally, the lot market price will increase as the supply of vacant lots increase.
If you’re purchasing raw land, have the land re-surveyed to be sure about where your property line is. [6] X Research source
In either case, you will need money for the down payment. This is usually paid for with the investor’s own money, as obtaining a loan for investment purposes can be difficult. Purchasing raw land is slightly more expensive. For this type of transaction, you will typically need to be put about 25 percent down. Finding a lender may also be challenging. Try using a mortgage broker to locate an affordable land purchase loan. [7] X Research source
If you do have enough money to cover the costs up front, think about the risk of losing your nest egg. Rainy day money is always good to have around, and you may think twice about risking it. The good news is that you may have paid off the home loan for the new property by the time construction is completed. This means you will be the property owner with no payments or strings attached.
Beachfront properties are an alluring buy, but factor in the added environmental dangers that would require an expensive insurance policy.
Unfortunately, there isn’t anything you can do to speed up the project. You can’t strap on a hard hat and operate one of the cranes. You will need to accept that you are at the mercy of the builder’s pace.
If you are buying the property to eventually live in, look at the materials of your current home. If you like the materials your current home is made of, look for similar materials in the new property.
For initial walk-throughs, this is a good way to look for drawbacks you don’t notice over the phone or looking at a map, such as strange smells, poor soil, road noise, etc. There may be little or no fee for backing out at this point. Final walk-throughs are a good way to spot construction flaws. Are the building materials actually what they described initially? Depending on the terms of your contract, you may have a bigger fee for backing out at this stage.
