Preconstruction phases or
purchasing a condo in Miami during new construction:
The primary 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.
Each preconstruction condo
project goes through four different phases:
Phase 1: Reservation
In this phase, 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. The buyer will find the great chance to
"reserve" the chosen unit with a deposit of 10-20% of the unit value,
with a "reservation agreement". This money is fully refundable.
Phase 2: Contract
Once the developer reaches the
point of the required number of reservation agreements, they create the
"hard-contracts" with the "condominium-documents"
specifying 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".
Phase 3: Construction
When the construction of the
project begins or the construction "breaks ground"; a second deposit
of 10-20% is required. The construction may take between 18 months to 2 years.
Another 10-20% may be required when construction reaches level where buyer's
property is or when roof of the building is complete.
Phase 4: Closing
Once the development is completed
(eifhteen months or two years later), buyer completes the transaction by
"closing" the unit. At this point, the remaining % 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.
Preconstruction Condos - FAQ
How does Florida law protect the
purchaser of a preconstruction condo?
In Florida, purchasers have a
fifteen (15) day rescission period starting with their receipt of the Public
Offering Statement, which includes the condominium documents, association
by-laws, preconstruction purchase contract and escrow agreement; to review and
complete or rescind any condominium purchase and escrow agreement and receive a
full refund of their deposit if they rescind.
The most important protection
under Florida law is that your deposit is held in an escrow account. These
funds will be not released until the closing of your unit unless the developer
designates a portion of the deposits may be used for construction in the
contract.
Why are preconstruction sales
necessary?
Most developers are required by
their lenders to pre-sell a certain percentage of their projects before the
bank or lender will lend them the funds for construction. This is the risk (and
the opportunity) when buying a preconstruction condo unit. If for some reason
the developer decides not to build the project then your deposit money has not
been appreciating. Preselling condos has become a standard practice. Once the
required presale percentages have been reached and construction has begun, your
risk is greatly reduced.
Why buy a preconstruction unit
when I can buy one that is available now?
By purchasing at pre-sale you are
able to leverage your down payment and control 100% of an appreciating asset
with a small (20%) investment. Many people have purchased preconstruction
condos and have sold their units for a profit even before the building is
completed.
On what floor and what size unit
should I buy?
If you are expecting to close and
live in the residence then you should select the view and floor height that
will appreciate most over time as well as one that you will enjoy living in.
The higher floor with unobstructed views are the best.
If, however, you plan to lease
the condo to a tenant, you will want one that appeals to the greatest number of
potential tenants. This can also depend on the area your purchase is located.
If you are in an urban environment, a one bedroom for single tenants may be
best; in a resort area, a condo-hotel unit with a management program may work
for you. In a suburban neighborhood, two bedrooms are often better because they
attract couples without children, single parents with a child or singles with a
roommate.
If you plan to sell your condo
purchase for a profit as quickly as possible then the least expensive unit on
the lowest floor (typically studios and one bedrooms) have shown the highest
percentage of return based on previous condominium resales.
What are the required deposits
for preconstruction condos?
With most preconstruction condos
you will be required to deposit twenty (20) percent by the time the developer
"breaks ground". Typically, there is an initial reservation fee, then
the remainder of the first ten(10)percent at the time of contract. The final
ten (10) percent is required when the developer breaks ground.
Can I sell my preconstruction
purchase before it's completed?
You must have written permission
from the developer.
You may sell your right to the
condominium unit by transferring or assigning the contract to a subsequent
purchaser.
You may sell your unit under a
real estate contract upon completion of the condominium. Two real estate
closings will occur simultaneously, your purchase, and the sale to your buyer.
Who may resell my condo?
You have two options in most
cases:
The developer may resell the unit
for you.
Your REALTOR® may find a buyer
for you.
In either case there will be a
real estate commission but this choice is solely up to you.
What are the advantages of having
a relationship with a REALTOR® when purchasing preconstruction condos?
A professional REALTOR® will:
Alert you about new
preconstruction projects before they are made public.
Help you compare the pricing in
similar buildings in the neighborhood
Inform you about community
infrastructure developments such as service retail and civic investment that
may effect the future value of your property.
Help you negotiate the terms of
the contract and advise you on alternative choices that may meet your needs
Share information regarding the
relative financial strength and track record of a developer with you.
Finally, since all realty fees
are paid by the developer, you are getting the services of the REALTOR® for
free!
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