Most people are aware of significant income potential via  investment real estate rental and appreciation, but many people believe that significant investment property appreciation can only be realized over a long term period.  This is not true.  Investing in preconstruction projects offers investors the opportunity to purchase property below market price and realize significant investment appreciation upon completion of construction.  Such opportunities are most widely available for large-scale real estate developments such as condominium complexes.  This is how it works:

Reservation Phase:   In order to obtain financing, developers must prove that a demand exists for the proposed project.  They create architectural renderings and floor plans and begin to presell units at a greatly reduced proposed price.  Prospective buyers hold a "reservation" on a particular unit with a token down payment, often $1,000-$5,000 which is placed in an interest bearing escrow account.  The "Reservation Agreement" is revocable at any time for any reason and upon written notice of cancellation, the investor receives a full refund.

Contract Phase:   Once the developer has the required number of presale reservation agreements, "condo docs" are recorded with the county and reservation holders are sent a copy of the docs along with "hard-contracts" which require a down payment (usually 10-20% of sale price) which can generally be made by a letter of credit issued by your bank.

If you are looking to make a quick profit, you should be sure that the contract that you are about to sign is "assignable".  This means that you can often assign or sell your rights (at a profit) before you go to closing.  Florida law requires that prospective buyers of new condominium developments are given a 15 day recission period after signing the "hard-contract" but after the recission period, the hard-contract is a legally binding sales contract.

Construction Phase:   Construction can take from 6 months to 2 years.  Your contract will have an expiration date upon which you are entitled to a refund of any deposits if the developer has not completed construction.  Once you've gone to hard contract, no additional money is required, except for upgrades until completion of your unit.

During this period, you will most likely see several sales price increases as completion nears.  This is how you can make a profit by assigning your contract before you actually own the unit.  Suppose you reserved the unit at $299,000 pre-construction.  3 Months after construction, developer prices for the same unit are raised to $339,000.  6 months after construction, the developer raises the price again to $359,000.    At any point, you can resell your rights to the unit and upon closing, realize the same gains as the developer.

Closing Phase:   Once construction is complete and if you have not assigned the contract, you will be expected to close on the unit.  If you don't, you forfeit your down payment.  For this reason, it's advisable to locate a lender and get pre-qualified prior to the completion of your unit.

Closing proceeds much like any other real estate purchase.  Additional expenses such as association fees etc, are disclosed in a "good faith estimate".  At closing, depending on your choice in markets, you can actually leave the table owning a condo with significant equity and some money in your pocket.  Lets assume the unit above is now priced at $379,000 at completion.  You put  20% of $299,00 ($59,800) down upon hard contract (either by cash or letter of credit).  You owe $239,200 + closing costs (~$5,000).  At closing your lender appraises the property at $379,000 and will lend you 80% of that or $303,200.  You only owe about $244,200 as stated above so you receive  $59,000 + interest on your down payment.

As with any investment, risks exist with preconstruction purchases.  The primary risk being that the developer is unable to complete the project and goes bankrupt.  The best way to protect yourself against such risk is by researching the background and completed projects of the developer.  With her investigative background and preconstruction experience, Debbie Orr will be happy to assist you in your venture.  Secondly, real estate values may not increase as rapidly as you had hoped.  By monitoring market trends and recent sales activity, you can maximize your chances of choosing an area that will appreciate at a favorable rate.  To assist you, uniquepanhandleproperties.com publishes the Panhandle Property Report .     You can also subscribe to our free monthly newsletter for current real estate activity on the Emerald Coast.

Current Preconstruction Opportunities

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