The Return of Pre-Construction Buying

The Return of Pre-Construction Buying

The first Friday of every Month Market America Realty’s Fort Myers office opens its doors and offers a place for clients and friends to meet in downtown Fort Myers River District during Artwalk. Normally there is food and drink presented and a local artist will display some of their pieces. It’s a great time for clients and agents alike to get to know each other.

This month’s Artwalk at Market America Realty was sponsored by Kevin Baas of DR Horton. Keven recently moved to  Moody River when DR Horton bought the rest of the Moody River inventory of buildable lots.   Kevin and I chatted about a community Market America is looking at taking over the marketing for ( new construction)  and I was asking about inventory.

Now if you have been following my column you know that South Florida is running out of homes to sell.  Kevin confirmed this when he told me that they do sold over 79 homes since he has been at  Moody River and –most of those contracts are for preconstruction homes. ( You put a down payment on  a home that will be built for you in the next 6 to 12 months).  Folks if this does not tell you that the market is back – nothing does.

I searched my archives as find that I first wrote about preconstruction buying in 2004. Although I know I first started selling preconstruction contracts in 2002. I have copied and annotated that original article here (annotations are in red). I though you would find it interesting:

When a developer plans a waterfront high-rise he has many hurdles to overcome, not the least of which is financial. Whether the developer is WCI or Engle homes, financial backers want to gauge the interest in a project and in many cases require the developer to have reservations on a certain percentage of condos before the project is given the green light. This translates into savings for the real estate investor. The developer needs these presales to prove his project and secure his financing and he will give incentives to the early buyers. Proof of the project today may not be the f driver – as many of these projects are existing and on sell out mode. Gail and I visited WCI’s Hampton Park project in Gateway just yesterday – both of the duty agents were busy writing contracts for – preconstruction homes. This is a great product by the way – and pricing is very attractive. Engll ehomes did not survive the bubble.

In many cases the first day price will be lower than the price for the subsequent condo purchasers. Many times the waterfront 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. To encourage further price increases he will program increases at scheduled intervals throughout the condo pre-sale stage. This does a few things. It encourages people to buy condos early because prices are going up, and it is a self-serving prophecy -buyers see the price of the waterfront condo going up, they want to get in on the increases, it creates more demand and indeed may increase values of the pre construction waterfront condos. Most of this still holds true, although  the preconstruction boom today is actually being led by the buyers today, not the sellers and the sellers are playing catch up

We like projects that are done in phases. These are normally condo buildings one, then condo building two, etc. In the past the best opportunities have been in buying the earlier condo buildings. Property values in Lee County, Florida have gone up an average of 17.1 percent last year, and as real estate investors know, waterfront condos much more. Over the last five years appreciation on real estate has been over 15% a year in Lee County. Couple this potential appreciation with the planned developer increases and price increase could be considerable. For example, when condo building three, unit 801 is ready for sale it may be priced at $880,000, when the same condo in building one sold for $714,000, less than one year earlier. The unit 801 in building one has not even closed yet! This betting on the “bigger sucker” is what, in part, led to the downfall of the market. The market ran out of “bigger suckers.”

There is a limited supply of buildable waterfront land. Developers can build golf courses and lakes, but its pretty difficult to create oceanfront or gulf front or even riverfront  land. Many people move to Florida to be on the water. Over the next eight years the baby boomer flood will start to peak. 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. The baby boomer peak was delayed, not canceled, they are still coming and I and I think hear their engines starting. Today I would no buy hoping to resell – but buy because pricing will is lower today.

Buying preconstruction today is a wise decision for those that want to own and live in their purchase or own and rent it until they move in. ( As I advised in 2004 – Do not buy if you do not plane to close. Today I would add do not buy unless you plan to close and hold).

Here are some of the reason why I like pre-construction buying today:

ü  Pricing is today’s pricing, often based on distressed land costs, on the tail end of projects with infrastructure already in and paid for.

ü  Financing is pre-arranged and  predictable (and low cost)

ü  The 5 to 18 month lead time gives you time to plan, to save, to anticipate

ü  You can pick your options

ü  You get a NEW home built to current hurricane and energy standards

Our team at Market America Realty and Investments, Inc. can help you find and structure the acquisition of your preconstruction home. We are indeed the experts and you should not approach a community without representation for your interests.  (Thinking of building?  Call us for that too!)

Contact me at Gfous@marketamericarealty.com  800-439-1580 – extension 52

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