Should I invest in Prelaunch in real estate

Investing in Prelaunch is quite risky but at the same time quite rewarding. 

Typically, this is not recommended for people who are risk averse or this is their first transaction in real estate.. This is typically a risk type of investment and partly it is border line illegal given that RERA law does not allow builders to make such sales.

1. What is Prelaunch:  Builder selling before all the permissions are in place by giving discount if you make “larger” down-payment (up to 100% payment)

2. Why Prelaunch:

·         For Builder: Needs tons of money for construction (and pre-construction) for land, and other permissions

·         For Investors: Chance to buy low and sell high. They enter early in the cycle of construction (actually long time before construction even starts)

 3. When does Prelaunch happens: Typically, sells at the time of land contract, sometimes during Municipality approval, and sometimes (but rarely) right before RERA approval

 4. How much money to invest: Typically, 100% payment upfront but sometimes loan option is available (20%-50% down payment)

 5. Builder Profile: Typically, Tier 2 or Tier 3 builder. However, can sometimes be top notch builders too or via land owners. Land owners are the people with whom builder has tied a contract to build an apartment complex

 6. Location: Top locations as well as outskirts. Apartments as well as Villas

Differences with normal purchase

·         Part of the process is very similar to normal purchase of real estate

·         Once we get to know offer, we have a meeting(s) with the builder

·         We pay to builder directly

 Key Differences

·         Most offers will be no loan option (aka full 100% payment) but ~25% of the deal will have loan option

·         Sometimes builder can request cash payment too

·         Full payment option will have lower purchase price compared to loan option

·         Not everything is set in stone so you can negotiate but reasonable transparency will be there

Some more tips

·         1. If all goes well, one can easily double the money in ~3 yrs time which is >25% YoY return

·         2. Even if things go slowly and we add one more year of delay, then also profit sis >15% YoY.

·         3. Risky is if it takes long time to complete (think permissions take forever like >4 yrs to complete or builder goes down). In such cases, the loss is significant and very limited recourse available for getting back the money. and this is real risk. It has happened especially in down turn when market is not as hot or also when builder is not doing good.