Are you looking forward to purchasing an apartment that is still in the pre-construction phase? At a glance, it can look like an attractive investment opportunity for real estate investors. The housing market is currently appreciating at a rapid pace, and demand will certainly increase in the future. But before you invest in a pre-construction rental apartment, it is always worth weighing the benefits and drawbacks of your investment. This guide can help you with it.

 

Benefits of Purchasing a Pre-Construction Rental Apartment

First, let's take a look at the reasons that tempt real estate investors to go ahead and spend their money on pre-construction rental apartments.

 

Lower Price Point

One of the very first things you will notice when you look at pre-construction rental apartments is the price tag. You can invest at a much lower price when compared to an apartment that is already built. If you are looking for a discount on the final sale price, this can be a good opportunity. Along with time, the value of your property would have appreciated. As a result, you can get the most out of your investment.

 

Ability to Generate Rental Income

Once the construction finishes, you will be able to go ahead and rent out the unit. This can help you with generating a stable rental income every month. Newly built rental units often tend to attract more tenants. On top of that, you will also be able to rent it out at a higher price tag. You just need to ensure that you are investing in a rental property in a prime location.

 

Tax Benefits

With pre-construction purchases, you will be able to maximize your tax deductions as well. For example, you can experience tax benefits on mortgage interest during the construction phase. That's because you are not generating a rental income during this period. On the other hand, investors don't need to pay any capital gains tax on the appreciated value when selling the property.

 

Less Competition

You don't need to deal with stiff competition when purchasing a pre-construction rental apartment. As a result, you will find it an easy task to secure an investment in a prime location as well.

 

Drawbacks of Purchasing a Pre-Construction Rental Apartment

Similar to the benefits, there are a few drawbacks to purchasing a pre-construction rental apartment as well. Here are some of them.

 

You Have to Wait Before Making Money

It will not be possible for you to generate money as soon as you invest on a pre-construction rental apartment. You may have to wait months or even years before you can generate money out of it. It requires a high level of patience for anyone to make gain from this method.

 

Issues with Construction Quality

It will not be possible for you to evaluate the quality of construction until the construction activities are finished. For example, you will not have any idea at all about natural light, noise level, or other factors that impact tenant satisfaction. Hence, you will be taking a risk with your investment.

 

Market Shifts

Rapid changes in rental demand or housing prices can alter the expected returns on your investment. There is a possibility for the local economy to decline as well. Another consideration for buyers to consider is the impact of tourism on rental demand in the area. If tourism is booming, you can go ahead with your investment without any doubt.

 

Key Considerations for Investors

Investors evaluating buying a pre-construction rental apartment should carefully weigh the following factors. Then, you can make sure that you are getting the maximum returns out of your investment.

 

Location

Focus on apartment buildings in neighborhoods near major employment hubs or amenities. They need to be places where rental demand is high and vacancy rates low. Avoid marginal locations.

 

Developer Reputation

Prioritize experienced developers with a track record of delivering high-quality projects on time and within budget. They reduce execution risk substantially.

 

Purchase Agreement Terms

Review the purchase contract thoroughly and understand cancellation, refund policies, construction delay provisions, projected completion dates, and more before committing.

 

Ongoing Costs

Account for property taxes, condo fees, insurance, maintenance, mortgage payments, and other costs during what could be a multi-year construction process while also meeting personal financial needs.

 

Target Tenant Profile

Research the demographics and needs of likely tenant groups in the area to evaluate how suitable the unit features, sizes, layouts, and finishes are aligned with demand. Bay Property Management Group Atlanta suggests to research about the potential rental market appreciation that landlords can eventually maximize.

 

Final Words

As you can see, investing in a pre-construction rental apartment can generate strong returns. However, it also carries a significant risk. You will need to weigh these pros and cons carefully before investing your money. In other words, conduct thorough due diligence before the purchase and you will never regret the decision.