Real Estate Investment Clubs: From The Developer's Perspective
Copyright 2006 Chris Anderson
Do you want a discount on every real estate investment that you
make? Do you want to always get in on the inside track for
preconstruction projects? Do you always want to get called first
by the developer about their latest, can't miss project?
If you are a truly serious real estate investor, then the answer
is a no-brainer. If you answered no to any of those questions
and you think you are serious about your real estate
investments, you may need to hang up your investor's hat and go
back to earning 2% in bank CD's! All kidding aside, every
investor would like to get a discount, be on the inside track
for preconstruction, and always get called first.
So, how does an investor accomplish this feat? Simple. Become an
asset to the developer when they NEED you!
Last week, we introduced the concept of working in a real estate
investment club (or group) and the power of Get 'er done. Quite
simply, if a developer or broker knows that your real estate
investment club can HELP them, then they frequently will think
of you first.
To understand the importance of a real estate investment club,
relative to an individual investor, let's consider 3 scenarios
for a developer.
Scenario 1: Developer A is offering a 300 unit, high end condo
for sale in preconstruction. Average unit price is $400,000
resulting in a total of $120 Million if completely sold out.
Early on, the developer needs to accomplish two goals: generate
enough pre-sales (maybe 50% of the project) to obtain
construction financing and to generate a large number of sales
rapidly to produce good publicity, buzz in the marketplace, and
initial sales momentum. Remember that for an individual buyer,
you are only 0.33% (that's 1/3rd of 1%) of the total project so
will not be in a strong bargaining position as an individual
going in on your own.
Scenario 2: Developer B has sold 80% of a project already sold,
but now the sales are starting to slow down. In the mean time,
this developer has additional projects that they need to get
started. For the developer, this requires tremendous amounts of
capital that is still tied up in their previous project. For
real estate investment clubs, the developer may decide it is
much better to discount the current project, for a quick sale to
the group, so they can move to their next project immediately.
Scenario 3: Developer C acquires an existing, 200 unit apartment
building for a condo conversion. They pay $100,000 per unit and
finance 70% of the purchase at 8%; i.e., they now have
$17,000,000 in debt that has an interest only payment of
$113,000 per month! In this case, the developer has to make a
decision if it is better to hold out for top dollar or instead,
work with real estate investment clubs to rapidly pay down their
debt. Once they have sold some preset percentage, the developer
can then open up to the general public at higher prices through
planned phased pricing.
Now it is time to switch hats. Putting yourself into the shoes
of these developers, now ask yourself what will happen if a
single investor, approached you for special terms. While I am
sure that you would be impressed (if you let the individual
through the door), in reality there is nothing that an
individual investor can offer you that would significantly
impact their business. None the less, we still see this
happening and always with the same result.
Now that you get that picture, let's look at that situation but
with a real estate investment club. A person for the group can
meet with the developer or appropriate representatives and see
if a good situation can be made for BOTH the developer and the
real estate investment club. If so, then the developer can
literally sell 10-100 units in the SAME TIME as it would take to
sell you on a single unit. This power in numbers as it pertains
to real estate investment clubs and groups is true and tested;
GetPreConstructionDeals.com is a prime example of where this
principle continues to work for the members of our group!
When working with real estate investment clubs, developers
typically have 4 primary concerns: 1. How much property can be
purchased and how fast; 2. What special concessions will they
have to provide; 3. How will a group of investors impact the
reputation of the developer and project; and 4. How confident
are they that the real estate investment club will actually go
to close.
If these issues can be addressed in a way that is beneficial to
both developer and real estate investment club, then you have a
great opportunity to participate in a tremendous investment.
Next week, we will extend this concept to really understand what
has to be done (in advance) by a real estate investment club and
how GetPreconstructionDeals.com can help to facilitate these
activities.