Preconstruction Investments some Problems & Solutions
Find Quality International Preconstruction Investments Without Getting Ripped Off?
INTRODUCTION
Most investors will tell you that real estate is a sound investment… one of the best you can make. There’s a fixed amount of land, it has many uses and therefore many potential users, there’s a solid history of appreciation, and it’s not easily misplaced! Real estate can be a high quality investment when chosen carefully, with professional help and due diligence. Resourceful investors who are looking for a quality investment with well-managed risk are starting to look outside of the US with greater frequency as they realize the interdependence of international economies… and the opportunities that result from that interdependence.
Unfortunately, like walking through the forest in the dark, the world of international preconstruction real estate investing can be a difficult world to navigate just like any other real estate deals. Inexperienced investors looking to put their money into global opportunities often end up with more questions than answers and throw up their hands in despair:
•Where do you start?
•Where are investments to be found?
•Are these countries safe to travel and invest in?
•How can you know if these investments will actually return any money?
•What laws are necessary to know?
•What if they speak a different language?
•What are the tax implications?
•… and many others.
Every question is one more potential stumbling block for the new investor… and a way for a less-than-honest person to scam that new investor. Investors who are new to the international preconstruction real estate market should feel concerned about who they do business with because there are many ways that scam artists can take advantage of them.
This report will explore the problem of scams and rip-offs in the international preconstruction investment industry and talk about how the inexperienced investor can overcome them with improved information and resources.
PROBLEMS
As with any investment opportunity, every legitimate opportunity seems to spawn a scam. That’s true not just of international preconstruction investing but of every investment: from Ponzi schemes to worthless stocks, from Enron scandals to confidence men selling the Golden Gate Bridge… both inexperienced and seasoned investors must cast a wary eye on the opportunity and the person offering it.
What kinds of scams exist in the international preconstruction investment industry? Here is a sampling of some of the most common:
1. The developer selling the real estate has no right to sell it. If you are an inexperienced investor who shows up in another country, all you have to go on is the good word of the person showing you the land. Does the developer have a right to sell the land you’re looking at? They may… but they may not. If you’re new to the preconstruction investment industry, you better know how to do your “due diligence” to ensure that the investment is safe.
2. In some places, a developer can build on the land if they cannot find the owner of the land… but the owner is given 10 years to claim the land back from the time the developer starts the claim. Once the developer has sold you the villa, condo, or house, they have their money and can walk away. Now imagine what would happen if the real owner of the property comes forward within the 10 year timeframe? Unfortunately, you would lose your investment, the owner would get their land back, and the developer would be off spending your money. You need to make sure the developer will stick around to finish the job and your going to get a clean title.
3. You are offered a preconstruction investment that seems legitimate and it comes with passive income opportunities in the future. Unfortunately, this type of investment can be a timeshare sales approach thinly veiled as an investment opportunity. How can you tell the difference?
4. You own the villa, condo or house but will never own the land. When this happens, you are only leasing the land for so many years. This is called a “leaseback” purchase and at the end of the stated time, your lease will expire and the property will be owned by someone else! That’s not an investment!
5. The developer uses very poor building supplies. The result is that your villa, condo, or house looks great for the first couple of years… but then falls apart soon after. Your investment will plummet unless you start pouring money into the home to fix it up. Are you able to return to your investment property and put in the time to rebuild it?
There are many more horror stories from international preconstruction investors just like here in the United States in all areas of real estate, who thought they found “the diamond in the rough” and invested their money, only to discover that one of the five situations listed above had occurred.
Real estate is a fantastic opportunity with very good returns and well-managed risk. With some experience, preconstruction real estate investing can transform how you invest. Instead of gaining your experience through the “school of hard knocks”, consider these solutions:
SOLUTIONS
Just because there are potential pitfalls and scams in the preconstruction real estate industry just like any other, you can still find great investments and great help. Use this list of suggestions to help guide you:
1.Use clear thinking. Although returns in preconstruction investing can be very good, be wary of returns that sound too good to be true. As well, be wary if you think you found the one deal that everyone else has missed. If the beachfront condo you’re investing in is $60,000 while every other condo in the area is $200,000, there’s probably a reason.
2. Find someone to do the due diligence for you. Due diligence should come from experience. Newer investors may not know what to look for on the international market in order to find the best investment. International economies are interdependent of each other… that means you need to find someone to help you do your due diligence who understands that your preconstruction investment is not being built in a vacuum, but as part of a global economy. You need seasoned analysts and economists who have their finger on the pulse of the global real estate market to help uncover truly valuable investment opportunities.
3. If you are traveling with a group of investors, make sure that you are not paying as much as you would for a vacation. Some companies pass themselves off as preconstruction investment companies or over seas property agents, brokers and so on..... but they are really just tour operators. If you’re paying a few thousand dollars to see an investment opportunity, think twice! It’s expected that you’ll pay some money for a tour, but you need to ask yourself if the company is profiting from the opportunity itself or from bringing you there! Avoid spending more than $2000 for a trip.
4. Find a real estate investment company that has experience and a network of contacts. A sure sign of a fly-by-night operator is one who does not have any deals “under their belt”. The company you choose to do business with should provide tours that run fairly smoothly and offer no surprises. They should have a well-developed network of attorneys and translators, and be able to speak confidently about the developer that you will be visiting. They’ll know what to ask and they’ll know who to ask. They’ll know if the developer has a good reputation and will build with good materials. They’ll know if the developer has the right to sell the land.
5. The real estate investing company you work with should outline more than one way of profiting from the investment opportunity. If you can’t find at least 3 ways of profiting from a piece of real estate, the investment itself may not be worth your time and the company you’re working with certainly isn’t.
6. The international preconstruction real estate company you work with or mentor should also be investing in the same property you are investing in. If they are simply showing you the property, and not putting any money into it, they may have a different view of the quality of the investment. Ask yourself, if this investment is so good, why aren’t they investing? When you invest in a property and the mentor or company that takes you there invests in the same property, you’ll have the peace of mind that they’ve done their due diligence on the property and the developer. What’s more, it’s a good sign that they are making money on the investment itself, not on sales commissions, travel expenses, brokerage fees, etc. If the mentor or company helps you to invest free of charge, they are making money on the investment – not from you – and that’s the find or person you want to help you.
Investors – both inexperienced and seasoned – will minimize their risks and improve their returns by finding a preconstruction mentor or company that can help them find the perfect investment. The best mentor or company will look a lot like the list above.
There are good returns to be had in the industry…just be carefull and look everything over VERY close and be sure to ask ALOT of questions a ALOT!!
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.
Excellent Post! Thanks Regit!