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Why buy a waterfront condo at pre-construction prices?

Price - When a developer plans a waterfront high-rise he has many hurdles to overcome, not the least of which is financial. 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 units before the project is given the green light. This translates into savings for the investor.
The developer needs these presales to prove his project and secure his financing and he will give incentives to the early buyers.

Price Appreciation - In many cases the “first day” price will be lower than the price for the subsequent 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 unit. To encourage further price increases he will program increases at scheduled intervals throughout the pre-sale stage. This does a few things. It encourages people to buy early, because prices are going up, and it is a self-serving prophecy – buyers see the price going  up, they want to get in on the increases, it creates more demand and indeed may increase values.

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 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.

No Carrying Costs - Example-  In January 1st you decide you want unit 300 in building two. You put $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. (If you decide not to proceed, you can get your $10,000 back). On March 1st you put a total of 10% down to bind the contract.
It will now take 18 to 24 months to build your condo (This varies from project to project). This 10% is held with a title company, not the builder. (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 two years with just 10% of its value. You still get two years of potential appreciation.

Pre Construction Advantages - More Choices - Lower Pricing - Greater Appreciation
Typical Questions and Answers on Pre Construction

Why Does a Developer need to Pre-Sell?
Construction lenders require a developer to pre-sell a proposed development to virtually test the market looking for sufficient sales to cover the amount of the proposed construction loan. This gives both the lender and potential investors confidence in the Development.

How does the buyer benefit from pre-construction purchase?
Lower introduction pricing to get the sales going, choice selections, and upon project completion the market has demonstrated significant appreciation in value.

How can I be sure my deposit monies are secure?
The deposit is held by an entity that is independent of the developer. The construction funds are held by the Lender and disbursed by the Lender through draws to the General Contractor. A small percentage of your deposit is normally used for construction.

When does construction begin?
When all of the following requirements and approvals are met:
1. Approval of Plans and Specifications by various governmental agencies.
2. Approval of Condominium Documents by State of Florida.
3. Execution of sufficient number of Sale and Purchase Agreements and Deposits sufficient to meet lenders requirements.

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