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Please advise if this investment strategy will work?

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  • Please advise if this investment strategy will work?

    "Hi All,
    I have heard a lot on investing in homes and/or residential condos before they are built (i.e when they are still in the marketing phase). After the project is completed(in a year time), one is supposed to sell it to make a profit due to the appreciated value of the property.

    I am absolutely novice in any king of real estate investing, therefore, looking for some help with regards to the following:
    1) Is this a viable invesment option?
    2) If yes ,then what to look for in such kind of project and what are the
    potential problems one could face by such kind of invesment.

    Your help would be greatly appreciated.

    Thanks"

  • #2
    Hi Blackhawk,

    I've seen this sort of investment go both ways, let me explain.

    Original sell down of an apartment block pre construction in Christchurch a couple of years ago.
    The 1 bedroom apartments all sold off the plan for $279,000 then 2 years later there are 6 on the market with offers from $155,000.
    One of these was sold for $129,000 (ouch).

    Then there was the Monvie apartment block in Holland Street, Wellington.
    It sold off the plan for $333,000 then two years later most investors who had only paid a deposit bond ($3000) sold their investment for $395,000.
    So after paying the fees and agent most profited by an easy $50,000.
    The people who kept their apartments have equity and positive cashflow.

    So whats the difference????

    With these two examples the difference was an independant valuation.

    The Christchurch example was sold with lovely drawings of how the building would look on completion but it was a bit light on actual detail.

    The Wellington example was sold with similar drawings and flash but it also had a complete plan of the quality of the fit out and a valuation from a respected local valuer.


    This allowed the buyers to compare what standard of fit out they were going to get on completion and compare that with the cost per square meter.

    A really nasty apartment might cost $2000 per SQM were as a very well fit out apartment may cost round the $7000 per SQM.

    Don't get me wrong though I've seen some great apartments for $3200 Per SQM and cost per sqm is not everything rather it's just the comparision between fitout, SQM and comaprable sales of other similar units that bring the true value out post construction.

    I hope this shine's some light.

    Cheers

    Steve Goodey

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    • #3
      Steves advice is good, but I would also add that it really depends on the way the market is going. If you think it is going to sky rocket up for the next two years then great, if not or worse still it might head down, then not so great.

      Usually, new houses are pretty hard to get or make positive cashflow, especially when they are just a pea in a pod in a larger development of identical housing. You might want to think about what your exit plan would be if the market didn't appreciate?

      Cheers
      David
      New to property investing? See: Best PropertyTalk Threads for New and Old Investors And/Or:Propertytalk Wiki

      Comment


      • #4
        I think it would also depend on how many other apartments in the same building or in similar local buildings come onto the market at the same time. The while supply and demand thing. If demand exceeds supply, the price will rise.

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