Real Estate Investing Tips, Issue #015
Preconstruction - Buy and Hold

It's been a long while since you heard from me. I am remiss in this.

The last 8 months have been a turning point in my life and getting through this process has required a huge amount of time and energy.

Now I am revitalizied and refocused.

The next couple of years promises to be the a time of great accomplishment and enjoyment for me in my professional and personal life.

From this point forward, I committ to you to get the newsletter out on schedule each month.

Thanks you for your continued support and interaction.

At the end of this issue: Free Real estate investing reciprocal link exchange programs with content rich, relevant sites.

Send us your questions and topics about real estate investing and seminars and we'll include answers and responses in subsequent issues. Do you have a topic or question you would like feedback on by the gurus?

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Today's Topic: Preconstruction - Buy and Hold - #015 March 2006 ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

This month's topic is Pre-Construction as it relates to development of resort properties.

This will be the first of several newsletters on the topic including:

Buy and hold
Pre-construction
Second/Vacation Home

Over the course of the next three months, we will discussing the subject with Andrew Taulbee, a CFP and a ChFC, a real estate investor and a former pitcher for the SF Giants. Andrew is VP of a company that specializes in marketing the development of resort properties in the Blue Ridge Mountains.

Overall, there's a lot of hype about the concept of 'preconstruction' and my objective is to discuss the realities and the pitfalls, so you can make a good decision about investing in them yourself.

Basically what we are talking about is where a developer makes a committment with various lenders to market developed properties according to a schedule that meets the terms of the agreement with the lender. This is determined by the track record, management capability and credibility of the developer and maintains ratios of debt within certain parameters that:

a) minimize the lender's risk
b) hold the developer accountable
c) mazimize profits

It is similar to construction financing where the lender agrees to release funds at various stages of completion on a project - according to a construction schedule.

In this case, however, the developer agrees to sell 'developed' property in stages and by segments of the total project, before money is loaned on the project.

Basically, the way an investor makes money in the preconstuction business is through appreciation - as well as increases in value of an investment property - as surrounding properties are either sold or completed.

The structure of these deals - and the returns - vary dramatically depending a good deal on the management expertise and performance of the developer and/or the marketing wing of the project.

One of the coolest things about preconstuction to me is that it is a good example of true capitalism - at it's best. That is to say that a devloper takes raw land and creates value for doing different things - for example:

1) subdividing the property and building infrastructure (such as water systems, underground electricity, roads and drainage systems
2) building houses that appeal to the overall design of the development with a high degree of marketability
3) sales of homes or parcels at a price that reflects a markup added to the cost of the subdivision, initial property acquistion price and infrastructure costs

In addition at various stages of completion, the houses - as well as the lots - increase in price each time a new phase of the development is completed.

The investor either puts in cash or uses his (or her) credit to purchase a lot or a finished home in advance of completion of the construction. This enables the developer to leverage his capital to take the cash for the 'preconstruction' sale to pay off the underlying debt on that parcel and freeing up the capital to buy additional lots or to take the lot (with a predesignated buyer - the investor) and get construction financing on that lot using the investor's credit to finance it.

=================================================== AN EXAMPLE OF BUY AND HOLD IN THE BLUE RIDGE MOUNTAINS ===================================================

As an investor, you can buy the lot with 90%, 95% or 100% financing depending on your credit score. (These programs vary a good deal - but the concept is the same.)

If you choose to get involved in buy and hold, you can purchase the lot either with cash or using your credit and hold onto it.

======================
Built In Appreciation
======================


In just the first year you own the lot, you should have 2 to 5 price increases. 2 price increases equate to a 34.44% appreciation on the land value. 5 price increases equate to a 78.95% appreciation on land value.

Because of the significant interest and growth in North Georgia's Blue Ridge Mountains, the opportunties for speculative land investment have never been better there. Because of the unique realtionship, Andrew and his company have with the land developer as well as their comittment to this project, investors are in a position to actually purchase land at a lower price than available directly from the developer.

Additionally, because the developer has established predefined scheduled prices increases, lots begin to increase in value almost immediately after closing.

The devloper increases lot prices 10% for every 25 lots that close. In Andrew's case, the developer predicts anywhere from 2 to 5 price increase in the first year of development and with 20-40 couples touring the properties every weekend, they sell fast.

If you choose just to use your credit to buy these lots, you can make money on the appreciation without doing anything else to the properties.

If you choose you can also work with the same developer to build a house and complete the development of the property to keep the property for a vacation/second/retirement home or to complete construction on the house and resell it at a profit upon completion.

We will discuss these options in more detail - and talk with Andrew directly - in next month's newletter.

Meet Andrew Taulbee in the meantime. (Note: it may be a day or two before the webpage is up.)

That's it for this time...

Regards,

Michael Barrett

=================================================

Regarding Link Reciprocal Exchanges

If you have a website, are trying to create an intelligent reciprocal linking exchange program and increase traffic to your site, here are three suggestions.

1) Join the Value Exchange program from the Sitesell people. It's FREE and it's easy. These guys are the cat's meow as far as small business marketing goes on the net.

Get more info about Value Exchange Program and get your free e-book entitled: Make Your Links WORK!". It's full of valuable information - in language that anyone can understand.

Sign up today and get the e-book about links!!!

I highly recommend it.

2) If you have know of a real estate investing club in your area that needs to be listed in our free directory, or if there are mistakes in our directory listings, click here: List your real estate investing club

3) If you would like to exchange links with our website, click here.

Give us your feedback...