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Invest in new construction

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A home doesn’t have to be old and dilapidated for you to flip it. Many real estate investors profit from flipping new homes or condos. Unless you’re focusing on a niche market that rules out new construction (see the later section “Focus on a niche market”), don’t overlook newly constructed homes.

The best time to hit newly constructed homes is at the beginning, when the builder first starts to sell units. After 60 months of construction, the cost to build may have risen substantially, so if you bought at the beginning, five years later you have that extra equity built up in the property compared to the other homes in the division.

In October 2020, my wife and I decided to downsize. We signed a purchase agreement to buy a detached condo to live out our retirement days in a space that worked for us. Within six months, the value of the property increased over $200,000!

When a new subdivision is opening, ask to buy the model from the builder. The builder can then rent it from you for a few years. It’ll be well taken care of because it’s for showing to prospective purchasers.

When purchasing a newly constructed home or condo, read the purchase agreement carefully. Here’s what you’re looking for:

 Conditional clauses: Make sure that the purchase is conditional on the satisfactory completion of the building and on your ability to secure financing for the purchase. If you sign a purchase agreement and then are denied financing, the builder may keep your earnest money and perhaps even sue you for breach of contract.

 Inflated profit estimates: Beware. You’ve probably heard stories of people who invested in a development and made $100,000 in short order. What you don’t hear are the stories of people who lose money, and those stories are much more common.

 Variable building costs: Some contracts include language that allows builders to charge a variable amount — for the price of materials, for example. That variable amount could end up costing you double your investment (or more) if the cost of materials rises substantially, as it did during the COVID-19 pandemic.

If, after doing your research, you’re convinced of the benefits of investing in a new construction project, make sure you’re among the first 10 percent of buyers. These buyers make the lion’s share of the profit because, as construction proceeds, building costs rise. To find out whether you’d be in the first 10 percent group, ask the salesperson, who’s usually camped out in the model home, the number of total units planned and the number sold, and then divide the number sold by the total number of units planned.

Flipping Houses For Dummies

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