There are 3 general stages to follow when investing in a preconstruction real estate property. You have a chance to make some earnest money. Remember, this is an investment; its value will increase over time.
Reservation Stage – The investor normally gives a minimal amount of cash funds to the developer, normally in the amounts of $5,000-$20,000. By putting a minimal amount of money down, you are forming a non-binding contract with the developer called a preconstruction reservation. In the case of a cancellation or price increase of the preconstruction real estate project the investor receives a full refund.
Contract Stage – The contract stage begins, when the developer and the investor enter in a binding contract together. The investor is required to put down anywhere from 5% to 25% of the cost designated by the developer. The developer is prohibited from raising the price of the preconstruction real estate property. Remember, that before you sign that contract you are eligible to back out of the reservation agreement and collect compensation.
Selling/Assigning Contract – If the developer offers a resale program to the investor, he/she is allowed to sell the preconstruction real estate property to another buyer. If a resale program is not offered to the investor then he/she must close on the property before it may be sold, rented out, or used for personal use.
