Pre-construction profits are often among the highest in the industry. At the same time so are the risks.
While the potential for profits in this particular corner of the real estate market are unconventionally high the risks are also abundant. This is speculative real estate at its very best and as we have all learned in the past, when the bubble bursts in a specific market those who have the most invested are the ones who often loose most heavily.
You are buying real estate in Perth at some point before construction is complete. In hot markets you will often need to purchase the units before ground has broken on the project in order to get the lowest price for your investment and highest potential pay off for your pockets. Once you’ve purchased the unit or units you plan to sell, then you begin seeking buyers for those units.
When the contractors attempt to get funding for their buildings in these large complexes they often need to have a certain percentage of the units “pre sold” in order to convince the banks that there is an adequate market. So real estate investors buy these units at rock bottom prices because essentially they are paying for the idea of the unit which hasn’t at this time been built and isn’t yet approved to be built in many cases rather than a brick and mortar property. As the project draws closer to completion, particularly in markets where real estate is in high demand, the value of the property rises dramatically.
There are any number of things that can go wrong on a project such as this not the least of which is that the demand for housing will be met before the unit is actually built. Also recessions, business closings, economies collapsing, and tragedies in the vicinity can occur before the property is complete leaving everyone who has invested heavily in the project holding a little bit of the bag and loosing their profits. These projects generally take a great deal of time to complete which makes the risks that much greater and the anticipation of these events a little more difficult to map out ahead of time. If you can manage to make it through, however many investors see more than a one hundred per cent return on their investment making it a popular type of investment among many despite the rather large risks involved.
