Pre-Construction Condo Market
Does anyone have suggested resources to learn from in the condo preconstruction market. It's hot on our coastline and I have some interested investors, but know nothing about it.
Thanks!
Paul
Are you referring to Baldwin county? If yes, be sure the area you invest in has more than just touism to support the local economy.
More specifically, there are lots of condo pre-construction sales happening in Baldwin county, but if we have another terrorist attack, what will happen to tourism in that Alabama area? What happened there after 9/11?
Get multiple opinions and get demographics from the Alabama county and Baldwin county websites if you can. Look for demographic and economic projections.
Sales prices could depreciate quite rapidly if the entire beachfront and surrounding cities are solely dependent upon tourism as their only revenue streams.
Otherwise, its a fabulous place and developing rapidly, from what I hear.
Best,
MarleneM
Pre-construction investing or buying 'off-plan'.
I have used it many times and it can be profitable. Very good leverage without having to qualify for a loan, find a tenant, etc.
The problems...
You are buying something now but you are not sure of the market conditions later. Anything from problems with the developer to more global issues (such as rising interest rates).
You are making a bet and you really can do nothing to mitigate some of the issues. Always consider multiple strategies for how you will either exit of take control of the property when it is completed. You want to make sure that if you had to you could rent the place and make the numbers work. Otherwise you need to seriously consider losing your deposit if the market moves against you.
Definitely consider if you have the ability to raise a mortgage when the project is complete. How high can the interest rates go before you will be unable to qualify without putting more cash down?
With condo projects you will have a lot of units coming ready at the same time. Can you really sell into such a market (or rent for that matter).
I definitely have made a lot of money making such investments. They tie up a lot of cash if you have a 2-3 year period before they complete. I tend to go for a unit that is unique or somehow different from the bulk of the others. Roof terrace, specific view, better floor plan, extra parking or something else so I can get the unit to stand out. I also prefer to buy in the very first phase so I get what should be the bottom of the market for the specific project. It might not be but it will be closer to the bottom then a later phase. When buying an early phase accept you will have a construction site close by for the later phases.
Small projects can be better for lots of reasons.
Having an on-site show unit is best and more or less required if you want to resell before completion. The next buyer will pay more if they can see and touch things rather then just look a brochures.
If you are buying a high up unit, try to get into some other building at a similar height to verify the views.
Questions?
One friend bought 5 units close in to a financial center 10/11. 18 months later she had a paper profit of just over 1M USD. High risk if she could not rent the units. Definitely was buying at what felt like the bottom but with 9/11 all bets were off. She has since sold off one unit and has all the others rented on good terms.
Because she bought so much before the final value the lenders was willing to lend on appraised value rather then purchase price. It was a private bank and this was a deal that took some special approvals.
John
[addsig]