Florida condo conversions, Miami preconstruction, pre-construction real estate,
oceanfront real estate
Buying at pre-construction
PRICE
When a developer plans a waterfront high-rise he has many hurdles to
overcome, not the least of which is financial. Whether the developer is
WCI or a local developer, financial backers want to gauge the interest in
a project and in many cases require the developer to have reservations on
a certain percentage of condos before the project is given the green
light. This translates into savings for the real estate investor. The
developer needs these presales to prove his project and secure his
financing and he will give incentives to the early buyers.
PRICE APPRECIATION
In many cases the "first day" price will be lower than the price for the
subsequent condo purchasers. Many times the developer will give
an extra incentive to those that reserve a unit by placing a
deposit ranging from $10,000 to $25,000 with the title company to hold a particular condo. To encourage
further price increases he will program increases at scheduled intervals
throughout the condo pre-sale stage. This does a few things: It encourages
people to buy condos early because prices are going up; and it is a
self-serving prophecy, buyers see the price of the condo going
up, they want to get in on the increases, it creates more demand, and
indeed may increase values of the pre-construction condos.
FURTHER PRICE APPRECIATION
We like projects that are done in phases. These are normally condo
buildings one, then condo building two, etc. In the past the best
opportunities have been in buying the earlier condo buildings. Property
values in our area counties have gone up nearly 15-25 percent a year for the
past 5 years! Couple this potential appreciation with the planned
developer increases and price increase could be considerable. For example,
when condo building three, unit 801 is ready for sale it may be priced at
$880,000, when the same condo in building one sold for $714,000, less than
one year earlier. The unit 801 in building one has not even closed yet!
LIMITED SUPPLY / INCREASED
DEMAND
There is a limited supply of buildable waterfront land. Developers can
build golf courses and lakes, but it’s pretty difficult to create
oceanfront, gulf front, or even riverfront - land. Many people move to
Florida to be on the water. Over the next eight years the baby boomer
flood will start to peak. Demand is expected to be even greater and
waterfront supply will be limited. If you want to fine-tune your
opportunity, buy penthouses. While the market may be more limited for
these unit, there are certainly fewer of them and buyers
will pay a premium to "be on top."
NO CARRYING COSTS
Lets examine how this works. On December first you decide you want condo
504 in building two. You put $10,000 reservation deposit on the unit since
it is a new development and the condo docs and permits are not ready.
Three months later these items are ready and it goes to contract. You
decide to proceed (By the way, if you decide not to proceed, you can get
your $10,000 back). On February first you put a total of 10% down to bind
the contract. Two months later, you give a 2nd 10% deposit when the
developer breaks ground. It will now take 18 to 24 months to build your condo (This
will vary from project to project). Your deposits are held with a title
company, not the builder. (This is an important point. Your money will
be secure and can be returned to you in the case of nonperformance by
the builder/developer). In some cases, the developer will ask for your
permission to use part of your deposit strictly towards construction
costs.
You have, in effect, tied up this condo for two years
with just 10-20% of its value. You still get two years of potential
appreciation.
