As I have been seeing so much ‘hype' with email blasts recently, from many different sources, about different pre-construction opportunities that are available through the internet. It concerns me deeply to see some of the advertising that is used to attract people to these deals. One email that I saw recently said “$50,000 -100,000 below market value, and builder will pay your payments for 2 years”, Guaranteed equity and also a market with at least 20% appreciation. Wow, I can't believe anyone can guarantee something like that. Will it be in writing? Will they stand behind it with their own cash?
There is something that must be said about development and how things work for developers. If the market is really strong in an area, the builder concessions and pricing are very tight. Why would a builder give a $50,000 – 100,000 discount if they could sell them all day long? Don't you think they would keep most of that profit for themselves? Think about that for a moment! Why would they pay your payments for 2 years if the market was so good and give a huge discount? They would not think of offering that nor would they need to. In residential real estate, in a “sellers market” do sellers knock their price down $20,000-30,000 just because, or are they getting 100% or at least very close to their asking price?
Developers have a margin for profit and price their projects based on those margins for the most part. Usually when you start to see large concessions from developers it is when you must be concerned. They are trying to ‘dump' or get rid of their inventory.
Sometimes we can negotiate as much a 5% -10 % below public pricing. These substantial discounts are for a large group of buyers to buy on a tour within 3 days. Why the difference 5-10% vs. 50-100K? Because we are in an emerging market where the developers have many buyers and don't need to negotiate much.
These sort of “amazing deal” e-mails tend to “draw someone in”. Many times they are in markets that are not solid and are not emerging. Please check them out carefully. Make sure that you do all of your due diligence. Don't just get “drawn in” and make a buying decision based on that alone.
If a deal ever sounds ‘too good to be true'. It probably is! Look towards a long term wealth building plan and not just a short term ‘get rich quick' scheme.