Guide to Pre-Development Investing

By: Eric Cox Real Estate 1 Follower


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Introduction

 

Southgroup Real Estate Investments was founded in 2001 to cater to the needs of investors and clients seeking creative real estate opportunities. As a result of Southgroup’s singular focus on investors, Southgroup has continually evolved its strategies to deliver strong results for our expanding client-base. Southgroup is well recognized in the Charlotte market for its niche in investor-oriented projects. Southgroup specializes in locating pre-development projects in North and South Carolina that have intrinsic value not currently recognized by average end-users.

 

Why Southgroup?

 

Southgroup’s value proposition can be summarized as follows:

1.        Better pricing terms for our clients that are not available to others, due to our ability to bring qualified investors in large numbers.

2.        Given our continuous assessment of real estate developments and familiarity with various market players, we locate attractive developments with investment potential. We only consider a development after substantial due diligence, supported by documentation.

3.        Strategic ongoing marketing efforts for our clients’ properties, at our expense, ensures that our clients have a permanent exit strategy in place.

4.        Southgroup Mortgage (a separate entity) is constantly evaluating changing lending programs to find the best available financing terms and deals for our investors.

 

Real Estate Investment 101

 

There are numerous investment opportunities in real estate; however, Southgroup specializes in bringing short- to medium-term opportunities for its clients in pre-development land. As with any investment, the duration of the investment holding period is completely dependent on the investor; however, our clients typically are interested in holding real estate from 1 to 3 years. Residential clients, of course, have long-term needs.

 

Actual Real Estate investment should be incorporated in any well-diversified portfolio due to its well-recognized negative correlation with equity investments. Security investments (even if they include Real Estate securities, such as REITs) are highly susceptible to market gyrations. As such, investors in real estate have a greater control over the type of property they buy and its unique features that create value and appreciation potential.

 

 

 

 

How It Works

 

1.        Southgroup locates an attractive pre-development project (determined by its location, geography, proximity to hotspot destinations, natural and proposed development features – such as rivers, lakes, mountains, ponds, proposed amenities, quality of developers, resources and capital earmarked for the project, etc.)

2.        Southgroup negotiates lower prices for lots and other pricing concessions from the developers, such as interest payments paid by the developer for 12-months, closing costs, etc.

3.        Our investors then have the opportunity to buy pre-development lots at the lowest available prices, thereby benefiting from any future appreciation in values.

4.        Investors generally prefer to secure financing for short durations such as 1-3 year Adjustable Rate Mortgages (ARMs) since they intend to sell the lot within their chosen duration. Approximately 10% cash outlay is required, with 90% financed via a mortgage loan. Investors with substantial assets may qualify for stated income loans not requiring full documentation of earnings/assets.

5.        The investor (buyer) gets the 12-months interest carry at closing plus any available closing costs (if offered).

6.        After the closing, the investor is responsible for taxes and mortgage payments on the lot, plus any other property dues, if applicable. The investor’s cash outlay for the first 12-months may be limited if the 12-months interest carry is available.

7.        Typically after holding the property for at least one year, an investor may sell the property and realize any appreciation on the value. Since the investor’s outlay is approximately 10-15% of the property’s value, the Return on Investment (ROI) may be significant.

8.        Although there is no guarantee of future values (due to external macroeconomic factors) appreciation in values is a highly probabilistic outcome as homes start ‘going vertical’ on the development. In other words, after the development is completed with all infrastructure and amenities in place, when end-users start building homes (hence the term ‘going vertical’) the value appreciation is synchronous with the now visibly tangible features and amenities available for immediate use and benefit of the end-user. The investor is rewarded for ‘holding’ the lot for the duration benefits were not tangible.

       _________________________

For more information or to attend a free seminar, contact:

    Eric Cox, REALTOR® | Investor

eric.cox@sgrmail.com

Mobile: (704) 493-5981

Denise Lomas, ABR | REALTOR® | Investor

denise.lomas@sgrmail.com

Mobile: (704) 236-4085

Licensed in NC & SC

Southgroup Real Estate Investments

120 Greenwich Rd | Charlotte | NC | 28211

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