Preconstruction Investing: What are your thoughts?

Question

I've been getting emails on this from different sites and was wondering if anyone has ever done this before and if it is risky and if it is risky is it worth the risks? Thanks in advance for your thoughts?

Frank Adams · Answer

brainfreez;

for preconstruction to work you have to have a VERY HIGH EXPECTATION of appreciation, like CA up until a year or so ago. Since you're in Houston I wouldn't try it in that, or any other TX market.

I agree with MikeOH about ignoring unsolicited emails, unless it's from my cousing Nduku who used to be the Nigerian Minister of Oil, he's got a great deal for you.

BTW, I don't do deals with anyone who spends a lot of time trying to convince me what a big time operator he is, or can't spell or use good grammar.

all cash

N/A N/A · Answer

I think Mike is a little confused about the process.  The developer isn't "paying" anyone 40% on their money.  There is a lot more at work than that.  I have invested with these types of projects and the ones I work with are legitimate.  In fact, I became a Strategic Partner with one of them (Axiom).  I don't know much about BridgePointe... I have heard of them.  Matthew did accurately present the idea behind this type of investment though..

Account Closed · Answer

HA, HA, did he really say 40%.  I'm all about positive mental attitude but WOW!  I wish I was around to be a part of this thread when it was happening just to have something to chuckle about when I was driving around, but I was too busy out there making 50%  :D   Heck I'll take 3% of purchase price which is 100% of earnest money, get my irons out of the fire and then take that money and put it in a CD to counter balance the stress of having cash in pre-construction.

Cheers!

Account Closed · Answer

You can make money at it but at the same time it carries a lot of risk.  First and foremost lets get the terms straight.  I think it puts a little more perspective on it.  Buying pre construction is not "investing" it is "speculation". With "investing" you are placing your money in an investment that may rise or may fall but some of your money will be there.  With "speculating" you are placing your money there with the hopes and speculations that the market will indeed rise and that you will be able to sell the property or assign it for a profit based on the rise in market conditions.  If the market has a downfall, then you can get in trouble quick The thing that makes pre-construction "speculation" so risky is you can get into it with very little barriers.  you can "buy" a 200K piece of property for 6K and this makes it attractive to everyone.  I see people get burned on it every day and if you read enough posts you will see some real horror stories.  What happens is everyone at a perspective property does this, and then come closing time, 80% or more of the new construction is for sale and prices are dropping daily because most of the people planned to sell at a profit and can't infact afford the mortgage payment. If you can, do what I did.  I found a local project. did a few weeks of research, found what I want, and then put an offer down.  BUT before I did that I took the contract to my attorney and had it amended so that my contract was assignable, where as everyone elses (except one of my clients) was not.  So, when the place is sold out and near completion when demand is still high (about 3 months from completion)  I assign the contract for a slightly higher price so that I'm not being greedy but protecting my self by getting a quick sale.  I also had several "out" clauses written in. Things such as approval of appraisal to construction delays.  The key is also to catch the project early to be able to get things like this written in.  If the developer starts to see that everyone want's a contingency, then he'll stop approving them.  Mine took a half day with my attorney and the developer approved them in 3 minutes while he was on the treadmill at the gym

Matt Harris · Answer

Hello fellow investors,

My name is Matthew Harris, I am the Director of Sales for BridgePoint Ventures.  I would like to formally apologize to the group if any of the participants were offended based on the dialogue with regards to AleksVentures.  Please note we typically do not discuss our model on open forums due to the fact that our materials are proprietary in nature. That being said, Josh Dorkin thought it best to clarify a few very brief points with regards to the information that was previously discussed on this forum.

BridgePoint is a Preconstruction Syndicated Buying Group comprised of 350 CEO’s, sophisticated investors, and executives.  We have been in business since 2005. We are a short-term financing solution for the national and international development community. We buy a negotiated percentage of a developer’s inventory in conjunction with individual buyers. This assists the developer in multiple ways:

1)      Saves developer time 
2)      Saves the developer marketing dollars Note: Some developers will spend as much as 25% on their marketing budget 
3)      Creates immediate credibility and momentum for his project 
4)      Secures financing

Note: The developer would need to presell 50% of his units with individual buyers with or without us in order to consummate his lending requirements. For the developer, it becomes a question of time vs. money.

In exchange for access to BridgePoint’s solution, we negotiate advantageous terms that are not offered to the general public. This includes:

·        A large premium or discount 
·        An obligation for the developer to sell our units before closing        Note: This is not a buy and hold strategy 
·        Clauses that can protect the purchaser from a downturn if the market was to experience a correction 
·        Protective terms to withdraw the client’s capital if the project was to experience construction delays or declare bankruptcy

The outcome of our model is to control the points of contact per our contracts and addendums with the developer mitigating our risk and shifting a large portion of the risk onto the developer’s shoulders.

I hope this has answered any questions and clarified some of the points that we previously discussed.  Thank you, Josh, for your assistance in maintaining quality control and if anyone has any further questions please feel free to contact me directly.  Best of luck to the group with your future investing!

Respectfully,

Matthew Harris

Director of Sales

2455 e. Sunrise blvd, suite 807

Fort Lauderdale, FL 33304

www.Bridgepoint-ventures.com

Office: 954-537-0612

Fax: 954-537-0616

Joshua D. · Answer

Hey everyone.  I just wanted to let you know that someone from Bridge Point Ventures, LLC, the principal on the Mandarin Oriental Chicago Project, has told me that he will be joining the forums and giving more information on the deal.

If you have any questions about this project, contact Bridge Point.

Mike Lindsey · Answer

I just wanted to say thank you to everyone for their feedback to this post.  8)

Michael Rossi · Answer

Flipper,

There are important issues here and I didn't see any bashing.  All Cash brought up an important issue with the spelling and grammar.  Professionals are judged on their ability to write and spell.  Just as All Cash said, I'm very suspicious when people are claiming to be big time operators, but can't even spell or use a spell-checker.   That's a warning sign.

In addition, I asked a serious question about the 40% return.  Why does a company that is doing $240,000,000 projects need small investments from small time operators on the internet?  That doesn't make a lot of sense to me.  Moreover, who in their right mind would pay someone 40% and not even use their money?  Does that sound right to you?

The amount of return on your money is generally tied to the risk involved.  If someone is willing to pay you 40%, how much risk do you think is involved?

Mike

Richard Warren · Answer

Not trying to bash anyone here, just having a little fun with allcash’s post.

8)

Richard Warren · Answer

So, Nduku is your cousin too ?!?!?!  What are the odds of that???  And what’s the matter with people who ain’t got no good grammar???

8)