1. What is pre-construction?
Pre-construction is exactly how it sounds; you’re purchasing a property before it’s built. Depending on the size or stage of the project, it could take one two or three years before you’re more moved in or reselling it as an investment.
2. What is a typical deposit when purchasing new construction?
A typical deposit is 30% of the purchase price. This is usually spread out through the construction process. An example would look something like this. 10% signing, 10% when the project begins construction, 10% when the project is more than halfway completed and the remaining 70% would be due at closing.
3. Is pre-construction a good investment?
Absolutely! The earlier in the project you purchase, the better deal you will obtain. The reason being is in the early stages of the project, developers are eager to make sales especially if they have had a loan for construction. I have seen investors receive as much as 25% return on their investment. That’s nothing to sneeze at; for a $1 million investment, you’re making $250,000.
4. Do you need a real estate agent when purchasing new construction?
Absolutely yes - and they better be very experienced in new construction and negotiating with developers. This is a much more complex sale as the property hasn’t been built. Keep in mind that a sale center representative works for the developer and not you. An experienced agent knows there’s much more to negotiate than just price. Often times these additional concessions can have great value when it comes time to completion of the building. For example, concessions could pay the flooring credit, an additional parking space, a storage unit, or discounting or waiving the developer fee.
5. What is a developer fee?
A developer fee is typically 1.75% of the purchase price. This covers most of your closing costs including title insurance. Your experienced agent will make sure to discuss this fee and try to either waive it or receive a closing cost credit.
6. Can you obtain a mortgage?
Yes, however in 99 percent of cases the sale is not contingent on financing. So what that means is you have the option to obtain a mortgage, however, if for some reason you're denied, you are still obligated to purchase the unit or lose the deposit. With all the reward comes some risk.
7. How do you know the credibility of the developer?
Do your homework. Research the developer and other projects they have built. Are they negatively involved in any litigation or legal matters? Do they have a reputation for delivering on time? Do they build with their own money or obtain loans for construction? What happens if the project is not completed by a certain time? Again, there are only a handful of questions to ask. Your agent should have the answers to all of these prior to you signing a contract.
If you want to speak to Josh Dotoli about a new construction purchase, please call 954-290-4793.
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