Real Estate Investment Clubs: From The Developer's Perspective ~ By Chris Anderson, Ph.D.

February 8, 2006

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 1/3 rd   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.

When working with real estate investment clubs, developers typically have 4 primary concerns: How much property can be purchased and how fast; What special concessions will they have to provide; How will a group of investors impact the reputation of the developer and project; and 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. About The Author Dr. Chris Anderson is the founder of one of the largest preconstruction groups on the internet today and is referenced in many venues including the New York Times and USA Today. Get access to wholesale property investments today. Note:  This article may be copied for use on other websites under the following conditions: It is not altered in any way. The about the author is included The http://www.GetPreConstructionDeals.com hyperlink remains intact.