Getting Started In Pre-Construction Investing?

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What is Preconstruction Investing?

In this post I’m going to show you what preconstruction investing is, and what it isn’t. It’s easily confused with other types of property sales (like timeshares, for example).

I’ll break it down for you and give the simple explanation and I’ll show you how it’s like other types of investments (because there are similarities).

Most importantly, after helping you understand what it is, I’m going to lay some of the groundwork so that in another post I can show you how you can make money from it.

The term “International Preconstruction Investing” can be confusing to people. Many people’s first impression is that it’s referring to a timeshare purchase or it’s referring to high risk properties in countries you’ve never heard of before. Some people may consider that to be international preconstruction investing. But it’s not.

Essentially, the international preconstruction investing I’m talking about is where you invest money with a developer who is in the early stages of developing a property. The money you give up front purchases the villa, condo, or house before it’s built. After the property has been developed, the land can be used by you (rented, lived in, etc.) or sold.

Let’s look at it a little more closely.

It’s international because we are willing to look anywhere in the world for investments. The US has some hot markets and some not-so-hot markets. So do other countries. Why limit ourselves to just one country – as good as it is – when we have the whole world stretches out in front of us!!!

The economies of countries (and regions within those countries) are not simple independent, but rather interdependent. Like the environment, things in one country or region affect things in other countries or regions. To be truly successful at understanding and profiting from international preconstruction investing, that’s a skill to be developed. Or, you at least want to find an investor or mantor who understands the concept of interdependence. Of course, being an international investment is not without its risks and in the upcoming post I outline those risks and tell you how to manage them.

It’s preconstruction because that’s where the money is. A simple rule of any kind of investing (let’s use the stock market for an example) says that a stock with a skyrocketing price is going to be popular and therefore should be bought. But if you’ve spent time in the stock market, you know that prices skyrocket because a stock popular. The real winner in the stock market is the one who bought Microsoft or IBM or GE at $5.00. The remainder of investors who bought these stocks near their current price will likely make money but not nearly to the degree that the original investors will have made.

In the same way, preconstruction investing is like buying those stocks at $5.00 and selling them when they are high. You’re buying property that is being developed in places that are going to be hot markets in the years to come. Buying post-construction investments won’t bring you the kind of returns you can get by buying preconstruction.

By investing I mean, of course, that there is a balance of risk and reward and at the end of the day you need to measure one against the other and decide if it’s right for you. All investments have some kind of capital requirement and investors should have the expectation of making money from that capital.

In an industry report I outline some of the scams that other so-called “international investing companies” offer and show you how those investments are not actually investments. Often there’s capital and risk, but very little reward.

So, international preconstruction investing is about buying property in soon-to-be-hot markets and enjoying the appreciation in value that comes from developed property in a popular location.

I hope my description of International Preconstruction investing has not been misleading. It may sound too simple. Let me be frank: it’s not simple. International Preconstruction investing is not about pointing to a spot on a spinning globe and saying “let’s look for property there.”

I make my money the same way you make money: by investing up front and exercising my renting, living, or selling options on the back end.

I hope this has answer the over 30 emails I have gotten asking to find out more informaion. If you still would like more information please ask away!!! I would be more then happy to answer your questions, but not 30 emails at a time....LOL

How does it compare to other types of investing?

As you’ve seen already, the principles are the same to other types of investing: there is some capital outlay, there are risks, but there’s also the expectation of a reward.

All investments break down to just two kinds: ownership-style investments and “loanership”-style investments.

Ownership investments are also sometimes called growth investments. These include your home, your portfolio of stocks, and your collection of fine art or fine wines. The idea with ownership investments is that you buy low and sell high if you want to make money. The challenge of this kind of investing is that there are fluctuations in the market that you have to ignore and you need to hold the investment for a while before you can realize any gains. The risk of this kind of investment is that the value will decrease instead of increase.

Loanership investments are also sometimes called income investments. These include corporate and government bonds, Treasury Bills (“T-Bills”), and Certificates of Deposit (CDs). The idea with loanership investments is that you loan your money to someone (a company or the government or the bank) and they pay you back your principle and interest over time. It’s slow and steady, and very predictable and reliable. The challenge of this kind of investing is that it does not have spectacular growth opportunities, like some of the more popular investments (think: tech stocks in 2000 and 2001). The risk of this kind of investment is that inflation will outstrip your returns.

Somewhere in the middle between the two types of investments are a few types that “straddle the fence.” These include some mutual funds, rental property, and – our friend – international preconstruction investing, too.

In each case, these “fence sitting” investments take the best of both worlds, providing you with the opportunity (in many cases, although not all cases) to earn an income on the growth of the value as well as a regular income.

Mutual funds will hold bonds and stocks, for example. A house that you own down the street that you’re renting out will give you current income and future growth-related income when you sell it. And shortly, I’ll show you how international preconstruction investing uses both income and growth principles in what I call “The 3 Wins” to give you 3 opportunities to make money.

How else does it compared? Well most investment I see profit margin are too low, the risk level is too high, the time horizon is too long, the control I have over the investment is too little or zero.”

Profit margin: I believe that you need to have a substantial profit margin before something is worth investing in. Investment advisors I talk to who convince people to invest in stocks or mutual funds say that you can probably expect a 12% to 18% return for safe money. Some real estate markets around the US and Canada returns anywhere from 10% to 25%. These aren’t bad investments… I believe there’s better and I believe that you can get MUCH better when you invest in international preconstruction investments.

Risk level: There’s going to be risk with any investment, but I believe risks should be investigated thoroughly and managed properly. I see many stock market investors who invest in something because their neighbor’s brother’s friend’s cousin heard that a stock could go up. This hearsay style of investing has (thankfully) diminished since the internet bubble burst around 2001, but this is still a common way to invest. To understand and manage risk, it takes experience, skill, and research just to start! I’m not saying that to scare you away from preconstruction investing, but rather to equip you so you can find experts to help you.

Time horizon: How long should you hold onto your investments for? Many espouse the long-term buy-and-hold principle of investing for retirement. This is not a bad idea, but it’s too bad that you have to tie up your money for so long. Others like the idea of flipping stocks like day traders, but this can be costly if you don’t have the experience or the guts to make tough calls! When you measure risk, many investment “gurus” say that the best time in the stock market is a long time, because the stock market constantly trends upwards. My feeling is, if I can find good investments with management risks that pay MORE than the stock market in less time, why wouldn’t I invest in those? A smart investor would. I believe in the principle: “for two investments of equal risk, a logical investor will chose the one with the higher return.”

Control: Stock market investing can be tough when you buy your 100 shares and even though you have a vote at a shareholder’s meeting, you watch the company make poor decisions and go-under. Commodity investing is even worse when you read about a rain storm that moves through the Midwest and demolishes a crop of whatever you had invested in. I like investments where you have some kind of control, including control to buy, control to sell; which you usually have with other investments but also…

o control to buy more
o control when to sell
o control how much to sell
o control to not sell but choose some other income-generating method

International preconstruction investing is similar to other types of investments in that it requires capital and there is risk and reward and in the growth and income description of investments, it tends to “straddle the fence”, giving you profit-making opportunities from growth and from income.

What’s the Next Step?

Think about your portfolio for a moment. Are you happy with your return? Does your portfolio give you the combination of profit, risk management, time horizon, and control that you want? I’m willing to bet that most readers wish that the profit potential was higher, and the risk management and time horizon were lower.

Think about where you are right now in all four of those categories… then think about where you’d like to be.

Once you’ve thought about where your portfolio is right now and what you really want from it, continue reading everything you can about investing, and find a great mentor.

How can I Make Money from it?

In this section I’m going to show you how I make money from international preconstruction investing and I’m going to show you how you can, too. This is not detailed step-by-step approach, that takes years of experience to master and I would be doing you a disservice if you closed this post and felt you could go out and find your own international preconstruction investment opportunities on your own. Instead, this is going to be a general overview to help you understand the opportunities available.

In this section, I will show you that you CAN make money in this type of investment, I will talk about how you can make money, and then I’ll finish off with a step by step instruction to give you an overview of how it works.

By the end of this post you’ll know that there is money to be made and hopefully you’ll be as excited as I am about the opportunities.

Can you actually make money from it?

Yes.

This is actually the hardest section of the post for me to write. I recognize that there are scams out there that promise a life of untold wealth but never deliver.

As a result, our internal judge is very wary about what we read or hear when it comes to potential income. Too low and the investment opportunity is not right for us. Too high and we feel that there’s no way that we can possibly earn that and therefore it must be a scam.

It reminds me of a famous story you hear in the marketing industry about a man who wrote a book several decades ago called “How to make $150,000 per year.” The book bombed. He asked around and learned that the title of the book offered a wage that was so outrageously high for the times and the audience that no one believed it was possible. So he lowered the promise on the title to “How to make $50,000 per year.” It was still a high amount for the times but it was much more realistically achievable by the audience and the book soon became a best seller. I have yet to discover whether this story is apocryphal or not, but it still relates a good message: you’ll only believe profit descriptions if they are not too outrageous. Therefore, this is the most difficult section of the book to write because it will make or break whether or not you actually decide to move forward in this kind of investment.

So, how much can you make?

I suppose you could make nothing, theoretically.

In some markets you could make between 10% and 25% but my experience shows that those markets are typically already developed, already hot or perhaps have started to wane in their popularity… and you can make that on both pre- AND post-construction investing in these areas.

With the kind of international preconstruction investing deals I do, I fully expect to make AT LEAST 50% return on my investment anywhere from 1-3 years. In that time frame, I can expect the development to be complete and the area where we’re investing will be starting to increase in popularity.

But I’ve also seen more… much more: 100%, 200%, 300%.

Has your internal alarm gone off yet? I suspect it has because many people who hear these figures say “yeah, right, no investment would be that much… and if it, the risk is probably tremendous.”

The reasons I wrote this post is show you some of the ways that this kind of income is possible.

I have been doing real estate investing for almost a decade and I make a very comfortable living from it… and I’ve made other people very comfortable as well.

How comfortable? I’m not going to tell you that I laze around all day by one of my three pools while I sip lemonade from a gold-plated cup. I work and I work hard, because I love what I do. I am no longer in it for the money. I love the deal and I love to work with people. I believe true wealth pushes beyond the dollar signs to include doing things you love, spending time with people you love, and making the world a better place. That’s why I do what I do.

I have purposely tried to avoid giving huge numbers and promising returns that will make your internal judge forget about this post and write me off. Keep reading and I’ll show you how that money can be made and what next steps you’ll want to take to start earning from international preconstruction investing.

How can you make money from it? PART I
It all starts with the one basic investment concept: buy low, sell high.

Here’s how: Developers don’t want to spend a lot of time marketing their properties to find investors. They just want to get enough money to build and then move on. That’s how they make their money. If they build on speculation and take years to sell the properties, they don’t like that: they’re builders, not Realtors and using a Realtor just cost too much. So they like investors but they like very large groups of investors even more because those groups buy up large parcels of the development from 200+ units in days – sometimes the whole thing – year or years before a shovel digs the dirt out of the ground. Whats what I do.

That’s not all I have found in the years I’ve been succeeding at this kind of investing is that there are actually several ways that you can make money from preconstruction investing. They include:

Buying pre-developed property and selling it when the price goes up during the development process.
Buying pre-developed property and selling it when the price goes up after the property have been developed.
Buying pre-developed property and renting it out to vacationers when the property is built.
Buying pre-developed property and renting it out to locals on a longer term basis when the property is built.

From this list I have developed something I call “The 3 Wins” style of investing that says that I won’t bother investing in an opportunity unless it gives me at least 3 ways to make money.

It simply follows the concept of a container with a hole in the bottom: if you pour water in the top and there’s just one hole in the bottom, only a little water (profit) will come out at a time. If you have 3 holes in the bottom, you’ll get far more from the container.

Good investors want to make sure that they can get good profit out of an investment but they want to have some choice in how they get that income. The properties I invest in must have at least 3 ways to profit, or the opportunity isn’t worth it.

How many of your current investments have 3 ways to win?

How can you make money from it? – Part 2
When people hear what I do, one of their first questions (after determining that I don’t buy timeshares!) is to ask, “How do you make money from it?”

Then they ask me, “Yes, but how do you make money from it?” Same question, but I know that they are now looking for more details. I told you what I told you to give you the big picture. Now let’s focus down a little and discover what I do in a step by step process.

Here’s how it works:

1. I have a team of economists and analysts uncover a market in the world that is currently quiet but will be hot in the near future. We begin the due diligence process, looking at…
• The country or region
• The developer and the developer’s plans
• The future of the country or region and how it relates to the interdependent influences of other economies
• The risks and potential rewards, the costs versus the benefits
• Ultimately: is this something I am willing to invest in?
2. Next, we contact the developer threw my list.
3. Then we purchase
4. Then, we wait.
5. In some deals, it’s as easy as waiting a week or two because the property will automatically go up as the developer begins and as the individual opportunities within that investment get bought up in a short time. Other times, it could be a matter of months… perhaps as long as 1 to 2 years as the developer completes the project. If you choose to sell before, you will still realize a substantial gain because of the growth of the property.
8. If you have held on to your investment during that time, you now have a couple options: you can put it on the market as a finished unit, or you can rent it out.
9. Get your cash out and start spending your money, or invest in another opportunity.

I have found that doing just 3 or 4 investment deals like this a year will produce a substantial enough income for you to do whatever you want.

That, in a nutshell, is what I do. I employ the very best people to do the analysis of the area: I’ve got economists on staff that looks at the regions we’re interested in and can do high quality, in depth analysis. When stepping out of the US you need to have a team like this I can tell you. I see so many people RUNNING to Coata Rico with out doing there home work. I have done mine and there is not a chance I would buy there.

On its own, the above process can make someone successful, but I would say get yourself a good Mentor to help you or someone that has invested in the area your looking.

What's the next step?

Look at your portfolio and at the person or company who is offering it to you and ask yourself these questions:

Do they do the due diligence you want them to do or are they simply working from a corporately mandated buy/hold/sell list?
Does your broker or advisor profit when you profit or do they get paid on a transactional basis? Although there are very strict rules monitored by the Securities Exchange Commission (SEC), your broker still does not truly care whether you make money or not because they get paid if you do what they tell you to do… and NOT if you make money. Brokers who are paid based on a percentage of your holdings at the end of the year are a better choice. Does your broker hold all the securities that they have recommended to you?
How many ways are you able to profit from your investments? One? Two? Three? Most investments have just one way and some of the better investments have two. Very few have 3 ways to win.

I’m not telling you to fire your broker and invest all of your money in international preconstruction real estate. But I am trying to show you that there are opportunities to invest more wisely than the current, popular methods.

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You’ve seen what the rewards can be. In this post I want to explain what the risks are. I’ll talk about 2 types of risk: the risk of investing and the risk of investing with just anyone who claims to be in international preconstruction investor.

I’ll show you how to manage the risks, I’ll identify which risks to worry about and which ones to ignore, and by the end of this post you’ll feel confident about stepping into this kind of investing to make money without worrying about losing your shirt.

What are the risks?

I’m glad you asked. Guess what: there are risks. If you ever hear of an investment opportunity – no matter what kind it is – that says it’s “risk free” then you should run (don’t walk) in the other direction. Unequivocally, that person is trying to scam you.

There are 3 kinds of risks:

1. The risk of investing
2. The risk of investing with the wrong people
3. The risk of not investing

I’m going to skip over “the risk of not investing” because there’s a very good chance that you don’t face that risk. If you’re here at biggerpockets.com right now, it’s likely that you’re thinking about investing. One of the risks of not investing is simply the loss of your cash holdings through inflation.

The risk of investing and the risk of investing with the wrong people are covered in the next chapters.

Potential risks you’ll face

I’m not going to say that this investment is risk free. No investment is. Investors face many risks no matter what investment they look at: these risks include such things as…

• Political risk
• Monetary risk
• Economic risk
• Foreign exchange risk
• Inflation risk
• Business risk
• Liquidity risk
• Interest rate risk
• Default risk
• … and others.

Not all investments face all these risks, but all investments face some of these risks and are more susceptible to some than others. (Stocks, for example, may be more susceptible to business risk than bonds because bonds, while different types of stocks may be harder to get rid of than other types of stocks and thus subject to liquidity risk).

In International investing, you could be faced with political risk (the risk that political decisions – including unrest – could result in the investment being lost), foreign exchange risk (the risk that fluctuations in currency valuations will mean lost money), and liquidity risk (the risk that you can’t sell the property).

When you invest in these things on your own (without any experience to back you up) you will definitely see these risks coming into play! But when you find a high quality investment company or mentor who will help you, these risks can be minimized and managed.

International preconstruction investing is a lucrative opportunity but not without its risks.

The risk of investing with the wrong people

Aside from the investment risks associated with investing in international preconstruction opportunities, there is another risk that makes life challenging. It’s the risk of investing with the wrong people.

When I tell people what I do, the very first thing that many of them ask is, “is this timeshare?”. I can sense that they’ve started to get their defenses up, afraid that I’ll offer them an “unbelievable opportunity” that they will someday later regret.

I don’t do timeshares. Unfortunately, those that do, also sometimes promote themselves as international preconstruction investing companies. And aside from timeshares, there are other companies that make offers and do deals that cast a long shadow on the industry I work in.

I can tell you that I’m not one of those people… I can do that until I’m blue in the face. So will the other guys, I’m sure.

So what I’ve done is created an industry report that exposes some of the scams you should watch out for and identifies how you can avoid them. I also give you a checklist to help you separate the legitimate people from the scam artists.

You can find it here: on biggerpocket. I encourage you to read it and use it. It could mean the difference between making a lot of money and losing a lot of money.

The One Secret You NEED to Know to Be Successful in international preconstruction investing:

I’m often asked, “why do you give this information away? Can’t someone come in and rip it off?” I suppose they could, but in this end of this post I’ll explain the one thing the separates myself from many others.

Whether or not you choose to start invest in international preconstruction investing, I’m going to give you the one critical secret that you will want to make sure you know before you invest with ANY international preconstruction investment company or start working with a new mentor.

The one secret your going to need on your side

The one secret that I believe that can make you successful over most all others is to team up with someone that has:

A global network of contacts

You will need a list of contacts that is literally priceless or make sure your mentor has LARGE list of:

o Developers
o Property owners
o Analysts
o Economists
o US-based attorneys
o Attorneys who are based in the areas we invest
o Translators
o Chartered jets
o Managers of 5 star hotels
o Happy investors who have made money

When the investment is sound, that’s a “first to market” advantage that any smart investor would crave!

Why do I mention this? As a warning! This post is meant to help inform you of your potential success in the area of international preconstruction investing, but it won’t make you an expert. I believe you need a great team with experience, and most importantly, a global network of contacts.

What's the next step?

You now know a little more about international preconstruction investment opportunities and you will be able to make your own decisions when it comes to finding a company or mentor that…

o Invests where you invest
o Doesn’t charge brokerage fees or finders fees
o Has the experience and contacts you need

About the Author: Charles Denney II; International Real Estate investor is the founder of Resinto Property. He brings the world’s most beautiful and luxurious vacation property, second homes and retirement destinations world wide within reach of the everyday investor and family through education, large volume purchasing power, a strong knowledgeable team and empowers average people to invest with confidence in international real estate. He feels strongly in the right of everyday individuals and families to be informed, to control their own portfolios, and to take charge of their financial destiny.