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Why buy a waterfront
condo at pre-construction prices?
Price - When a developer plans a waterfront high-rise he has many hurdles
to overcome, not the least of which is financial. 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 units before the project is given the green light. This translates
into savings for the 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 purchasers. Many times the developer will give
an extra incentive to those that reserve a unit by placing a $10,000 deposit with the
title company to hold a particular unit. To encourage further price increases he will
program increases at scheduled intervals throughout the pre-sale stage. This does a few
things. It encourages people to buy early, because prices are going up, and it is a
self-serving prophecy – buyers see the price going up, they want to get in on
the increases, it creates more demand and indeed may increase values.
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 or 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.
No Carrying Costs - Example- In January 1st you decide you want
unit 300 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. (If you decide not to
proceed, you can get your $10,000 back). On March 1st you put a total of 10% down to bind
the contract.
It will now take 18 to 24 months to build your condo (This varies from project to
project). This 10% is held with a title company, not the builder. (Your money will be
secure and can be returned to you in the case of nonperformance by the builder/developer.
You have, in effect, tied up this condo for two years with just 10% of its value. You
still get two years of potential appreciation.
Pre Construction
Advantages - More Choices - Lower Pricing - Greater Appreciation
Typical Questions and Answers
on Pre Construction
Why Does a Developer need to Pre-Sell?
Construction lenders require a developer to pre-sell a proposed development to virtually
test the market looking for sufficient sales to cover the amount of the proposed
construction loan. This gives both the lender and potential investors confidence in the
Development.
How does the buyer benefit from pre-construction purchase?
Lower introduction pricing to get the sales going, choice selections, and upon project
completion the market has demonstrated significant appreciation in value.
How can I be sure my deposit monies are secure?
The deposit is held by an entity that is independent of the developer. The construction
funds are held by the Lender and disbursed by the Lender through draws to the General
Contractor. A small percentage of your deposit is normally used for construction.
When does construction begin?
When all of the following requirements and approvals are met:
1. Approval of Plans and Specifications by various governmental agencies.
2. Approval of Condominium Documents by State of Florida.
3. Execution of sufficient number of Sale and Purchase Agreements and Deposits sufficient
to meet lenders requirements. |