Forward Purchase Agreements: A Guide for Real Estate Investors

If you`re a real estate investor looking for a way to lock in a future acquisition, a forward purchase agreement may be just what you need. This type of contract allows you to secure a property before it`s even built or completed, giving you the advantage of a guaranteed future purchase at a set price.

What is a Forward Purchase Agreement?

A forward purchase agreement is a contract between a buyer and a seller for the purchase of a property at a future date. This type of agreement is commonly used in real estate development where construction has not yet started or is in progress.

In a forward purchase agreement, the buyer agrees to purchase the property at a future date, typically after the completion of construction. The seller agrees to sell the property at a set price, which is often negotiated at the time the agreement is signed.

Benefits of Forward Purchase Agreements

Forward purchase agreements offer several benefits for real estate investors. They allow investors to secure a property before it`s completed, which can be advantageous in a competitive market where properties are in high demand. Additionally, forward purchase agreements can help investors lock in a favorable price, protecting against potential price increases.

Another benefit of forward purchase agreements is that they can help investors secure financing. Lenders may be more willing to provide financing for a property that has already been secured through a forward purchase agreement, as it reduces the risk for the lender.

Risks of Forward Purchase Agreements

Like any investment, forward purchase agreements come with risks. One risk is that the property may not meet the investor`s expectations once it`s completed. This can be particularly problematic if the investor is unable to sell the property for the anticipated price.

Another risk is that the seller may not be able to complete construction on schedule, which can delay the closing date and cause the investor to incur additional costs. Additionally, the seller may encounter financial difficulties during the construction process, which can result in the project being delayed or abandoned.

Final Thoughts

Forward purchase agreements can be a valuable tool for real estate investors looking to secure a property before it`s completed. However, investors must carefully evaluate the risks and benefits of this type of agreement before signing on the dotted line.

If you`re considering a forward purchase agreement, it`s important to work with an experienced real estate attorney who can help you navigate the legal complexities of this type of contract. With the right guidance and expertise, a forward purchase agreement can be a powerful tool for building a successful real estate portfolio.