Real estate construction jargon often seem misleading. It might prove more fair to state that pre-construction and incremental construction are both variants of a sell-then-build development strategy. As the name implies, developers pursing this approach seek to sell their product – a house, a condominium, a skyscraper – before building, using buyers’ monies to support the cash flow needed for construction. Certain they have buyers’ and cash in hand, developers enjoy reduced risk. In return, they extend reduced prices to buyers.
Both variants of a the sell-then-build business model, incremental construction is best understood in contrast to pre-construction. In a typical pre-construction project a developer collects money from investors and/or buyers in anticipation of building – even, using an option, in anticipation of acquiring a property on which to build. Instead many pre-constrcution projects invest mostly in their marketing material and use capital raised from buyers to help secure the financing to build. Generally, the pre-construction builder secures permits, installs infrastructure, lays roadbeds, and prepares foundations after the money arrives.
By contrast a typical incremental construction developer has already acquired and prepared the property for building. That developer has already invested significant capital in permitting, infrastructure, utilities, roads, foundations and the like. They have, in short, begun building before seeking buyers’ monies but they have not finished. The incremental construction developer doesn’t wait for buyers’ monies to start building the project; instead those monies help take the project to the next increment of building, often beginning with a specific building’s foundations.
An incremental construction developer’s investment of time and money reduces the buyers’ risks by meeting them halfway. In return the developer anticipates a shorter sales cycle and, consequently, a higher return on investment. This higher return allows the incremental developer to remain competitive with pre-construction projects, offering comparable discounts but much less risk.