Preconstruction Basics

Preconstruction Basics

There are no risk free investments but a real estate acquisition is one of the most sound and secure investments. A Miami pre-construction purchase with the appropriate guidance and suitable information has certainly great potential as an investment opportunity. However like any other investment it should be studied seriously and given the proper consideration. The basic concept of buying in pre-construction is essentially that the developer is being funded with the purchaser deposit instead of a bank loan. Consequently, the savings in financing costs are being passed down to the buyer. Nobody can predict with total accuracy what your savings would be in a given project. However, according to the records in the best cases you could save up to 30% of what the finished product would cost. Perhaps the greatest benefit of investing in preconstruction condo projects is that it offers the purchaser the ability to leverage a large asset with a relatively small amount of money (typically 10 to 20%) and enjoy the real estate appreciation of the property over time without the carrying costs, such as interest and taxes.

It is imperative that you understand that the terms, conditions and schedule of payments could vary by developer and project.Before signing you must read and understand carefully the terms and nuances of the developer Agreement.I will help you to assess the different possibilities of your investment so that you can make the best-educated choice. Ideally the outcome will surpass your expectations!

Having clarified that the schedule of payments of each project could be different, there are typically four stages in a Miami condo pre-construction transaction.  

Stage 1: Reservation

In this phase, the developer requires you to put a cash deposit of 10-20% with a Letter of Interest or Reservation Agreement to reserve your unit of choice. The developer is offering the units at the lowest price of all future stages. These prices are always below the market price and give the developer the chance to test the real demand for the project, helping the financing process that they face with their current lenders. We should note that a project occasionally can go straight to Contract without a Reservation. Funds are normally placed in an interest-bearing bank trust account and are fully refundable with interest anytime during the pre-purchase-agreement phase of the transaction.  During this phase both buyer and developer have the option to cancel the Reservation. This Reservation Agreement is the equivalent of a First Right of Refusal to purchase.

Phase 2: Contract

This second stage typically requires a second installment of 10% due 4 to 12 weeks later with the Purchase Agreement. During this phase the developer reaches the point of the required number of reservation agreements and they create the hard-contracts with the condominium-documents specifying in detail all the legal and technical specifications of the development. Once the final contract is delivered the buyer typically has a 15 day Rescission Period to review the documents and can choose to commit to move forward or cancel and receive refunds on the reservation fees. Some words of caution, once the Rescission period has ended and you have entered into the Contract stage you will lose you deposit if you are unable to secure sufficient funds at closing. 

Phase 3: Construction

When the construction of the project begins or the construction breaks ground; a second or third 10 to 20% is required to complete the initial deposit(s). Don’t loose sight that as previously stated the schedule of payments varies by developer and project. The construction may take between 6 months to 2 years. Once the developer finishes the buyer’s floor or when the building is "topped-off" an additional 10 or 20 % will be required. Depending upon the project you will have paid anywhere from 30% to 50% before closing but currently in most cases your balance at closing will be 50%.

Phase 4: Closing

Once the development inOnce the development interiors are completed 6 months or 2 years later), you will complete the transaction by "closing" the unit. At this point, the remaining money to complete the purchase will be required, and the mortgage or the cash payoff will have to be available, along with the closing costs and all the typical expenses related to a Florida real estate transaction. In the next post we'll disuss examples of some of the current pre-construction projects in Miami.

Call me now to schedule a complete presentation of the project. For Reservation please contact me at 954.254.6085 or email me at JuanSolerRealtor@gmail.com Time is always of the essence but much more in Pre-construction. Don't miss this window of Opportunity!

To Buy, Sell or Rent Properties in Miami go to http://www.JuanSolerRealtor.com