Nevertheless, the situation is not entirely bleak. In today’s market, investors can achieve returns by putting their money into properties that are still under construction, be it residential or commercial spaces.
This method of investment has its own peculiarities, advantages, and disadvantages.
Founder of RESURS, S.I. Tereshkin, will discuss this in further detail. You can read more about the entrepreneur and his business activities on the website www.org-market.ru.
Characteristics of Investment
Investing at the foundation stage or during the construction of the initial floors can lead to savings of up to 40% or even more, depending on the stage of construction. During this time, the investor can make payments in installments over a set period. This means that paying the entire amount for the property upfront is not necessary. Developers actively collaborate with banks and financial institutions, resulting in the total amount being split into manageable installments paid monthly. This arrangement is beneficial for all parties involved.
Ownership transfer occurs once the construction is completed and the property is handed over for operation. Until then, investors can carry out renovation work. Consequently, after the transfer of ownership, they can rent or sell the property. New constructions generally command significantly higher prices than equivalent secondary market real estate or commercial spaces.
It is crucial to understand that new properties quickly transition into the secondary market, resulting in an automatic decrease in value. Therefore, S. I. Tereshkin recommends selling the property immediately after it is operational or within the first year afterward.
The longer the process is drawn out, the smaller the eventual profit.
When opting for rental income, it is important to acknowledge that active use leads to wear and tear. Within just a few years, the property will require repairs, which incur additional costs. The extent of these costs often depends on the tenants’ care for the property. In most cases, individuals do not treat others' possessions with great care, which can lead to significant investment expenditures.
Advantages
This method of investing has several advantages:
- High yield. Investing during the initial stages of construction can yield a profit of up to 50% upon selling the property.
- Liquidity. New properties are often in high demand, making it relatively easy to find buyers or renters, especially if the building is located in an area with developed infrastructure.
- Short payback periods. The return on investment rarely exceeds one year, as modern technologies enable rapid construction.
- Simplicity. This investment method allows for income generation without diverting attention from core business activities, making it a passive approach that does not require personal involvement.
It is a reliable investment method that does not necessitate extensive knowledge, time-consuming learning, or a deep dive into vast amounts of information.
Disadvantages
Despite the numerous advantages, this method does carry certain risks:
- There is always the risk that construction may not be completed, leaving the investor without their funds or with frozen assets for an indefinite period.
- After ownership transfer, the owner must pay utility bills, even if renovation work has yet to begin, leading to increasing costs each month.
- Upon completion, clients may receive bare walls, and in some cases, there may be no internal partitions at all. Many properties only have exterior walls, leaving the interior as blank space. The user must then plan the space according to individual requirements, which can substantially delay the timeline for renting or selling, thus prolonging the time to profit.
- Choosing the wrong property can make it difficult to rent or sell, leading to funds being locked away indefinitely.
Investing should not be done thoughtlessly. It is essential to read reviews online, gather at least minimal information, and study analytical and statistical data. Listening to professionals’ advice is also crucial.
Useful Tips
When selecting this investment method, experts recommend only investing in properties that are already under construction. If only a foundation has been laid, it is best to wait.
Work only with companies that have a long-standing presence in the market and have built a strong reputation. It’s advisable to avoid working with newcomers.
Preference should be given to residential real estate, as it remains in demand even during crises, particularly small one- or two-bedroom apartments.
Investments should be made only in properties situated in prime locations where there is likely to be demand from potential clients. Avoid purchasing properties in remote areas lacking transport stops, shops, pharmacies, and educational facilities. Conditions for comfortable living must be established for potential residents.
To avoid losses, it is advisable to start renovation work even before property rights are transferred, provided the construction company allows it. In most cases, organizations are willing to cooperate with clients and do not create obstacles.
Every investment requires a responsible approach, and this one is no exception. Diversifying risks is also advisable, meaning that one should not invest all funds into a single property or investment method.
:
Great breakdown of under-construction property investment. It’s true—location and timing are everything. I've found to be a smart way to build long-term gains when done wisely.