BUYING PRE-CONSTRUCTION

THE TWO MAIN BENEFITS OF INVESTING IN PRE-CONSTRUCTION CONDO PROJECTS ARE:

That the buyer is able to buy a brand new condominium property to be delivered some time in the future, based on today’s prices, and

Leverage that investment, since typically the developer will raise prices as incremental units are sold. During previous cycles this has ranged from 10% to 25%. Since the buyer has placed only up to 50% of the purchase price, that appreciation is doubled or more depending on how much down is required. Currently most developers require 50%, but several are now requiring only 35% as risk in the marketplace has been diminished since the 2008 real estate debacle.

STAGES IN BUYING PROCESS

RESERVATION:

Generally, a refundable cash deposit of 10%-20% is required with a Reservation in a Pre-construction Condo unit. Funds are typically placed in a non-interest-bearing bank trust account and are fully refundable anytime during the Reservation Phase of the transaction. A Letter of Interest or Reservation is the equivalent of a First Right of Refusal to Purchase where both buyer and developer have the option to cancel a Reservation.

CONTRACT:

Once the developer reaches the point of the required number of reservation agreements, they are ready to deliver the Public Offering Statement, which includes the condominium documents, association by-laws, pre-construction purchase contract and escrow agreement.

These docs specify in detail all the legal and technical specifications of the development. This stage is usually reached between 1 and 3 months after the reservation agreement. The buyer is required to advance an additional 10-15% and given 15 days (rescission period) to examine the condominium-documents. If the buyer wishes to go ahead the contract now becomes “hard”, meaning all current and future deposits are non-refundable.

CONSTRUCTION:

When construction commences, “breaking ground” in industry parlance, the developer will require an additional 15-20% deposit. Construction then typically takes 18-24 months from this point. The next deposit is typically done at “top off” which is when the last floor of the building is put in place it is typically 10-15%.

So as recap, deposits are 10-15% with reservation, 10-15% at contract, 15-20% upon breaking ground and 10-15% at top off.

Some developers as explained earlier are now requiring only 35% total deposits, so the requirements are lower, (i.e. 20% at contract and 15% at top off).

CLOSING:

Closing takes place when the developer obtains the “Certificate of Occupancy” and the units are turned over to individual owners. At this point you are required to pay the last 50% (or 65% in case of a 35% deposit with one of the developers requiring only that amount), wither in cash or have arranged for lender financing of the unit.

The process described above can vary by project and developer. That’s why it’s very important that you obtain advice and guidance from a pre-construction specialty team and read and understand every section of your developer Agreement. We at Miami Luxe Associates are here to provide you with the best representation and guidance throughout this very exciting time!

Please, contact us now.