Steps
- For residential opportunities: Search for the area market or city where you would like to invest in real estate. For Investment/Second homes decide your needs, goals and critical buying criteria including budget, theme (i.e. beach, ski)
- Find a local realtor to assist you to locate and set up appointments for you to visit potential properties of interest. For Investment/Second home pre-construction resort real estate it used to be up to the individual to find and evaluate all of the available opportunities, especially those not in the United States which is difficult given all that is available. That has changed now with some consultant firms specializing on just the luxury pre-construction resort real estate market.
- In the US have your local realtor set up appointments to visit the in-house sales offices of selected preconstruction projects. For investment/second home opportunities contact a luxury pre-construction real estate consultant so that they can work with you to identify which opportunities are perfect to meet your needs and goals.
- Choose the project(s) that you wish to invest in. The first 3-6 months of the pre-selling phase of preconstruction consists of the reservation stage. When you sign up for the project of interest you will a receive contract from the developer. If you are working with a consultant firm they will coordinate the delivery of the needed paperwork.
- Review and complete the required paperwork. The sales contract will be accompanied by a refundable deposit, usually 10% of the purchase price. The deposit is held in escrow with a selected title company and is fully refundable should you wish to cancel your reservation. The reservation stage of a project usually lasts until the project is at least 70% sold out.
- Review all documents with your accountant or lawyer - After the reservation period which can last anywhere from several days or 6 months until projects sell out. Time frames and process to proceed to final contract depend on the developer and the country in which the real estate is being built. Your consultant will be able to guide you step by step through this process. Once the final contract is delivered the buyer typically has 15 days to review the documents and can choose to commit to move forward or cancel and received refunds on the reservation fees. Again, process and timeframes often vary by country and development. Your pre-construction resort real estate consultant will be able to guide you through this process to ensure ease of transaction.
- Post Contract - At this point you will be asked to provide roughly 20% of your purchase price or the balance of your earnest money. This balance is minus your initial reservation deposit. It takes approximately 18-24 months after you submit your hard contract for construction and closing to be completed. Depending on the development and the country payment schedules and property delivery dates can differ.
- Proceed to closing - At approximately 18-24 months after hard contract when the project is at or almost fully completed, you will be issued a Certificate of Occupancy (CO). At this point you are granted access to inspect your unit and create a list of any faults you find. You are doing a walkthrough to make sure the unit is to your satisfaction and is not in any way at default. Assuming all is to the owners satisfaction, you will go to closing. At closing you should have financial arrangements made regarding the balance of the unit or units. This is done by securing financing or having available cash or transferable assets.
- Determine a return of investment strategy - each investor or purchaser involved in a preconstruction project has a different strategy or motive for how they will capitalize on their preconstruction opportunity. Real estate can be owned and lived in, sold quickly, or depending on the available programs, rented for the owner by a resort management company while the owner is away, without owner effort, for a share in the rental revenues. Others are most concerned with rare location and unique branded real estate and amenities that could lead to longer term capital appreciation.
Tips
- Investor should be aware of IRC 1031 which allows for the tax deferred exchange of real estate. This would allow a real estate investor to sell his investment property and invest into a new property without paying taxes. This permits greater leverage and can allow an investor to invest from one property into multiple properties or vise versa.
- Look for projects with reputable developers and evaluate their projects that have already been built to determine quality.
Warnings
- Caveat Emptor - Latin for 'Buyer Beware' - understand that although your best interest should be upheld often brokers or real estate agents have their own interest in mind. Their primary well-being is based on receiving commissions from sales therefore all the information that you discuss with your agent should be evaluated with outside parties such as your lawyer or CPA. For this reason, avoid pre-construction sales teams that are only selling one project for they are motivated to consider everyone as a perfect candidate for their project. There are few pre-construction opportunities perfect to satisfy buyer needs. As such, seek an unbiased pre-construction resort real estate consultant with a broad portfolio to help find your perfect real estate.
- There is always a slight chance that a preconstruction project will not follow through to completion or finish development. This occurs when developers cannot meet their goals of financing for construction of the project. In the event this occurs owners will receive their returned escrowed deposits and will be pursued by other developments. Owners may be enticed by incentives and deep discounts to fill empty spots in other projects. Before moving forward it is best to ensure that the considered project is well funded and meets all of your critical needs.
Sources and Citations
- Jacksonville Florida Appraisers - An excellent source of Counties, Cites and Appraisers in the state of Florida.
- Legacy Resort Consulting Pre-Construction Second/Investment Real Estate Specialists on Condo-Hotel, Full, and Fractional Ownership Residences. Representing the world s finest portfolio of luxury pre-construction resort real estate. Free market analysis and consulting based on satisfying owners needs and goals.
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