What is Pre-construction? Pre-construction is the opportunity to join a fellow group of investors in an effort to finance the development of real estate. This is also buying a condo before it's actually built, whether purchased initially or as the assignee of a contracted unit while in construction.
What are the benefits of buying Pre-construction? The buyer benefits in a couple of ways. First, the price paid for a Phoenix Gulf Shores condo is locked in and will not change. While the building appreciates over the duration of construction, any appreciation is profit. Secondly, there are tax benefits.
How do I reserve a Phoenix Gulf Shores condominium? A simple reservation agreement along with a $25,000 deposit reserves a unit. After approximately 60 days, the remainder of the price must be paid. This is called "going to hard contract."
What is hard contract? When enough units are sold and the developer is applying for a construction loan, a buyer will be asked to go to hard contract. A hard contract is the binding agreement that converts the reservation to a sale. When the contract is signed, generally you have 7 days to review the offering and make arrangements to pay the cost balance. (Note) There will come a time, during the offering, that you will go directly to hard contract. This usually happens after some short time during the selling process.
When does the construction start? Construction will commence once the developer has sold the required number of units and the lender funds the construction loan.
What does need not be built mean? This means the developer is allowed to pre sell the condominium, which has not been constructed. It also means that it may not be built if all permits and approvals are not met. In this unlikely event, the purchaser is protected under law and all monies will be returned.
What happens if the building is not built, at no fault of the purchaser? Your deposit and any other monies will be refunded.
How long is the construction period? Generally, a condo the size of Phoenix Gulf Shores, takes approximately 2 years to complete.
How much profit should I expect? It depends on general market conditions, interest rates, and competition. In past years, profits have ranged from to $50,000 on average, peaking at several hundred thousand dollars when waiting through the entire construction process and sometimes longer. Phoenix Gulf Shores will be a great rental property and the best idea may be to use the condo as a rental property. *This is based on recent market trends and we can not make guarantees.
Can I sell before closing? Yes, in which case the developer allows a new purchaser to take over your contract. The new purchaser must come under the same pre-construction purchase and escrow agreement as the first buyer.
What happens if I sell my unit prior to closing? The developer will collect a deposit from a new purchaser to assume the existing contract. The new buyer then steps into place to close and your deposit and any proceeds will be returned.
Do I have to close on the unit if I have not sold it prior to closing? Yes, if you choose not to sell your unit, you are expected to close.
Can I reinvest my 1031 into Pre-construction? No, because of the length of construction for a condominium, the guidelines for the exchange are not met.
Are there any costs related to the sale? Yes, you will be responsible for some closing expenses such as title insurance, funding of the association, insurance, reserves, etc. These charges will be outlined in a Good Faith Estimate provided by the selling agency, and in the developers offering statement.
Are there any other contingencies, such as financing? No, the sale is not subject to financing.