Buying Your Pre-Construction Condo
In some areas of the country, the condominium market has crashed as a huge surplus of defaulted or unsold homes has wreaked havoc on the market. One market that comes to mind is Miami.
On the other hand, some cities are experiencing a building boom as empty nesters, retirees, and investors look for good values in real estate. In my area — Raleigh, NC — several all-new construction projects are in progress, providing state-of-the-art housing adjacent to everything: government offices, museums, businesses, shopping, and more.
If you are desiring all-new construction or conversion housing, the time to start, build, and complete the project can span several years. This means that you must do your homework before deciding whether a particular condominium is right for you. Let’s take a look at some things you should consider when buying pre-construction.
Why would someone buy something before it is built. For several reasons:
- Oftentimes, early buyers receive a discount as builders want confidence that their project is in demand. By offering a price slightly lower than the market rate, you could find a nice deal.
- Buying now and paying for it later could mean that your property has appreciated during the time it took to be completed. For example, if that two bedroom garden high-rise was contracted for $440,000, it could have gone up in price since. You’ll pay financing on its original value or if you are looking for a way to make some money, you could sell your unit and pocket the money.
When buying pre-construction keep in mind the following:
- What will your financial situation be when the project is complete and you’re ready to move in? Will you need a mortgage and, if so, will you qualify for one?
- Will interest rates be stable or are they trending higher or lower?
- If you are investing in the property will you live in it or rent it out? What are the rental rates for comparable units?
- When the project is completed, what will the neighborhood be like? Will there be other projects under development and what sort of local amenities will be found nearby?
Of course, when you buy pre-construction, your chances of getting what you want are greater if you act sooner rather than wait. Specifically, you’ll be able to choose the floor, floor plan, and unit location (will it face an office building or will you have an unobstructed view of the river?) if you act quickly.
Consider also your down payment monies, possible taxes (property taxes will come later), fees, and the like when buying pre-construction. Theoretically, your cash outlay should be small at first.
The end result of new or repurposed housing is that your home is brand new. You bought it at yesterday’s prices and, if you did all your research, you now possess a home that has appreciated significantly in value.