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PRECONSTRUCTION

NOTE: Contrary to what you hear on late night TV you cannot reserve a unit unless you are financially qualified.

WHY PRE-CONSTRUCTION ?

PRICE
When a developer plans a waterfront high-rise he has many hurdles to overcome, not the least of which is financial. Financial backers (bankers) want to gauge the interest and absorption rate in a project. In many cases, the developer is required to have reservations on a certain percentage of condos before the project is given the green light. This automatically translates into savings for the buyer. The developer needs these presales to prove his project is viable and to secure financing. To accomplish his objectives the developer will give incentives to the early buyers.
 
Prices generally run around $650 per square foot for bay front and Intracoastal condos while docks start around $125k. Gulf front properties are in the area of $1,000 per square foot. Therefore, a 1,500 sq foot bay front or Intracoastal property will cost around $975,000 and exceed $1 million with a dock. Gulf front units of the same size will run $1.5 million for a ground floor unit. Penthouse units are larger (around 3,000 sq ft) and sell in the $1,000 per square foot range to cost over $3 million.
 
PRICE APPRECIATION
In many cases the “first day” price will be lower than the price for the subsequent condo purchasers. Many times the developer will give an extra incentive to those that reserve a unit by placing a $10,000 deposit with the title company to hold a particular condo. (The more exclusive projects have a higher reserve requirement.) To encourage further sales the developer will program increases at scheduled intervals throughout the condo pre-sale stage. This accomplishes several things. It encourages people to buy condos early. Why? Because prices are going up and it has evolved into a self-serving prophecy. Buyers see the price of the condo going up, they want to get in on the increases, it creates more demand and may indeed increase values of the preconstruction waterfront condos.
 
FURTHER PRICE APPRECIATION
In the past, the best opportunities have been in buying the earlier condo buildings. Property values in Florida increased an average of 30% in 2003 & 2004 and 12.7% in 2005 and as real estate investors know, waterfront condos much more. Couple this potential appreciation with the planned developer increases and price increases could be considerable. You can view the Pinellas County price increases by community and complex  on www.GulfCoastCondoReport.com.
 
LIMITED SUPPLY/INCREASED DEMAND
There is a limited supply of buildable waterfront land. Developers can build golf courses and lakes, but it's pretty difficult to create oceanfront or gulf front – or even Intracoastal - land. Many people move to Florida to be on the water. There are 78 million baby boomers who will retire by 2026 with the bell curve peaking around 2020. These numbers vary slightly by source, but Florida is always listed as a preferred retirement location meaning demand is expected to be even greater – and waterfront supply will be limited. If you want to fine-tune your opportunity, buy penthouses. There are certainly fewer of them and buyers will pay a premium to “be on top”.
 
NO CARRYING COSTS
Let's examine how this works. This month you decide you want a waterfront condo. You put down a $10,000 reservation deposit on the unit since it is a new development and the condo docs and permits are not ready. Three months later, these items are ready and it goes to contract. You decide to proceed. (By the way, if you decide not to proceed, you can get your $10,000 back). You raise your escrow to a total of 10% down to bind the contract. The project will begin construction in 1-3 months when an additional 10% may be required. It will now take 7 to 18 months to build your condo (this will vary from project to project). Your escrow is held with a title company – not the builder. (This is an important point. Your money will be secure and can be returned to you in the case of nonperformance by the builder/developer.) You have, in effect, tied up this condo for one to two years by investing just 20% of its initial value. You can still reap the benefits of potential appreciation without having a mortgage payment or paying association fees.
 
If you would like to receive an information packet on various preconstruction properties email or fax your name, your contact information (mailing address) and telephone number (required by developer before they will mail you a packet). Specify the type of property you are looking for and a price range. If you like what you see in the preconstruction packet, be prepared to mail a certified check for $10k (most complexes) to $40k (exclusive complexes) within a couple of days to get added to the list of potential buyers.
 
FHA FINALIZES 'ANTI-FLIPPING FRAUD' RULES

WASHINGTON, D.C. -- June 12, 2006 -- Beginning July 7, only the homeowners listed on recorded documents can sell properties slated for Federal Housing Administration-backed financing, according to new FHA rules intended to discourage property flipping. Additionally, FHA financing will not be available for homes sold within 90 days of purchase.  Sellers will have to provide additional valuation data to unload properties between 91 and 180 days after the last transaction, in cases where the new sales price is 100 percent or more higher than the previous sales price.  HUD, Fannie Mae, Freddie Mac, lenders unloading their real estate owned (REO) portfolios, local or state housing agencies, nonprofits with HUD permission to purchase discounted REO properties, inherited properties, and dwellings located in presidentially declared disaster areas are exempt from the anti-flipping rules.

 

Source: Realty Times, Kenneth R. Harney (06/12/2006)