This article explores the advantages of buying preconstruction homes overseas, the risks involved and some precautions to take.

The Advantages of Buying Preconstruction Homes

Buying preconstruction homes definitely offer great advantages. First you get to CHOOSE! You don't just settle for any kind of property; you can select design features and specifications. You can actually be involved in the design of your new investment. If you're a property specialist, you will be able to tweak some features and make the home desirable to prospective tenants.

Also, these kinds of properties offer the best deals. You get the lowest deals on pre-construction homes within the first two weeks of the project's launching. Buying a preconstruction home also means that you don't have to worry about repairs and maintenance. You may not have to perform renovation on a new home for the next five years.

Buying Preconstruction Homes Overseas Is Risky

Just as they offer great rewards, buying pre-construction real estate overseas can quickly turn out to be a sour deal. Hence these investments require foresight, research and an ability to think and make deductions like an investor rather than the average buyer. You should be able to determine where the neighborhood is heading in the near future and also make a comparison of project options within your budget constraints.

The biggest risk behind pre-construction houses is that it's a non-liquid investment. For the period in which the property is being built, which can be two to four years, in the case of condo units, you freeze up a large chunk of capital. Although you might have access to visual representations or projections, you're practically buying an invisible property. You've not seen the finishes or the outward finishes.

These properties also require more down-payment requirements than their resale counterparts and you can't touch your cash or pull out should you need your money. So, it is a risky proposition. How do you protect your investment in this case?

Rules To Follow When Buying Preconstruction Homes Overseas

1. Never pay the full price upfront on a pre-construction property. It's standard to pay 30% of the cost during construction and the rest on completion. You should pay the balance when the property is move-in ready and when you can transfer the title to your name.

2. Check the specification. Do not leave this to the developer. The more detail you add to your contract, the more likely you are to get what you expect. Detail all. Start with the exact size of the home, broken down by rooms and hallways, patios, balconies and storage space.

3. Time. Get a clear deadline for the completion and delivery of the property. Most developers do not finish as scheduled. But do not allow the developer to add a 12-month overload period and go scot-free. He should have to pay a fine if he’s unreasonably late.

4. Make sure you are covered if something goes wrong. The contract should give you a decent time frame for snag-checking, and outline what type of builder's warranty you get. Be sure to include a clause that covers what kind of steps you will take if you cannot resolve a problem with the developer, be it mediation with a trade body, arbitration or a lawsuit. In some countries, if the developer doesn’t complete the property, you will get some of your money. That is not the norm, though.

Buying pre-construction property can be very profitable when you’re in the right market. These rules will help put you on the right track for a successful purchase.

You don’t want to pay excess on a property. So, it’s important to know what a home really costs on the equity scale

Real estate whether home or abroad is a substantial, long-term investment. It is therefore imperative that you research various countries and neighborhoods before choosing one to invest in because economists agree that there is an opportunity cost to investing in a particular property.

Your research should include the existence of changing political and economic scenarios, as these would have profound impact on the housing market, especially influencing central bank rates and lending policies.

Factors Affecting Market Value of Foreign Real Estate

Location is critical. Apart from the real estate conditions existent in the country, you don't want a place with high crime rate and bad transport system. But looking ahead, you have to examine the profitability of your investment. Home appraisers looking at homes consider features like property age, lot size, internal square footage, number of bedrooms and bathrooms, amenities and overall condition. Hence the first step in determining your home's market value is taking an appraiser’s glasses and looking at the home objectively, writing down the principal features of your home.

How to Determine Market Value of Foreign Real Estate

Valuing a home is not an exact science but here are some things you can do to make a ‘scientific’ guess on the fair market value of a property abroad.

1. Check out comps.

Find four or five comparable homes in the area that have sold within the past six months. A local agent should be able to help you with that data. Your research on comparable homes (comps) will give you a good indication of what your intended property might be worth. Comparable homes should be roughly the same size, construction, age and style with the same number of rooms, layout and other features. You want to identify the prices at which these properties sold and how fast they left the market.

2. Calculate the rate per square foot.

For each of your comps, divide the selling price by the square footage of the property. This gives you a price per square foot or PPSF. Find the average value of these homes by adding the PPSF figures and dividing by the number of comps you are using. For example, suppose it has the following compositions:

Property A is 2,000 square feet and sells for $ 420,000. The PPSF is $ 210.

Property B is 2,200 square feet and sells for $ 480,000. The PPSF is $ 218.

Property C is 1,900 square feet and sells for $ 390,000. The PPSF is $ 205.

Property D is 2,000 square feet and sells for $ 475,000. The PPSF is $ 237.

The average price per square foot is $ 217. Multiply this figure by the number of square feet of your home to get a rough idea of ??the market value of your home.

3. Consider the special qualities of your home.

While the PPSF gives a benchmark, it does not take into account the unique features that could raise or lower the value of your home. Improvements like a new bathroom, kitchen or siding tend to add value; On the contrary, it is likely that a home in poor condition will have a lower value than a well-maintained property. There is usually a wide variety of prices per square foot based on these factors. Ultimately, you have to decide if your home is worth more or less than the average PPSF in your neighborhood.

In the book Cross-cultural Business Negotiations by Donald W Hendon, there is this story about a US sales professional with years of negotiating prowess in the US, pulling down walls due to his aggressive negotiation skills. He was asked to negotiate a business deal in Japan and he failed because the same aggressive skills that brought home the bacon in the US was considered a sign of weakness and insincerity in Japan. So negotiating on foreign soil presents a little more challenge.

But whatever the reason for negotiating or the country in which you are negotiating, the important thing is looking beyond the surface and understanding the motivations of the other party. This might be hard to do when you have barriers like cultural, socio-economic, political and religious differences. But you can break through those walls and infer the motivations of the other party; study weak points, analyze your strong point and get a win-win result. Here are property negotiation tips to achieve these whether on home or foreign soil.

1.     Be respectful.

Being respectful and courteous tells the other party you’re calm and might signify you have the strong ground. This would make the negotiations an enjoyable ground for you. Moreover, everyone likes respectful people. Likability can work in your favor. But going in all firing with an aggressive attitude and you could be sending the wrong signals.

2.     Do not be afraid to ask for what you want.

Successful negotiators are assertive and challenge everything - they know everything is negotiable. Being assertive means asking for what you want and refusing to accept NO for an answer. (Check the difference between assertiveness and aggressiveness). However practicing being assertive will take care of your interests while maintaining respect for the interests of others. When you put your own interests in front of others and with a lack of respect, then you are negotiating aggressively.

3.      Listen.

The most popular word in the English language (or any other language for that matter) is "I". Therefore, it stands to reason that most people love to hear themselves speak. Communication is imperative in any negotiation. Negotiators are looking for that point that will unite the two sides and create a platform for a result. Good negotiators ask questions and then listen. The other party will tell you everything you need to know - all you have to do is listen. Follow rule 90/10 - listen 90% of the time, speak 10% of the time. Make a lot of open questions sit back, relax and listen and you will be amazed at what you hear.

4.     Be Prepared.

It’s not a good strategy when you have to sit down at the negotiating table and think "I wish I'd known that" or "If I just found out before leaving the office. Know whatever there is about the house, the neighborhood and the state before getting to the negotiating table.

5.     Always be willing to walk.

Never negotiate without options. If you rely too much on the positive outcome of a negotiation, you lose your ability to say NO. When you say to yourself: "I will walk if I cannot secure a negotiation that is satisfactory," the other side perceives that you mean business. Their resolution will force them to make concessions.

Doing your homework is vital to successful negotiation. You cannot make accurate decisions without understanding both sides of the process. The more information you have about the people you are trading with, the stronger your negotiating power.