I’m the first to admit it takes a bit of courage to invest in pre-construction real estate.
You’re essentially investing in a model of what the new home might look like, along with fancy pictures and lavish copy promising stunning views, shiny high-end appliances, and a ton of amenities.
I’m also the first to know that if you are able to take a little risk, along with doing careful research, you can realize a nice increase in equity before ever moving into the dream home that you may have helped design. Anyone considering buying pre-construction property should carefully weigh all the facts before investing. As with most investments, there are pros and cons to consider.
Tying Up Cash, Earning Equity
Buying pre-construction is pretty much just that—purchasing real estate before it is built or during the construction phase. Prices are generally between 10% and 20% lower than what the units will eventually sell for once the building is completed, but you’ll need to wait months until taking possession and your cash will be tied up while earning that extra equity. Not a lot different than investing in the stock market or putting the cash on interest.
Know The Developer
The single biggest thing to consider with pre-construction buying is who is developing and managing the construction. I almost never suggest someone purchase pre-construction unless the builder has a long reputation of delivering projects as promised, on time and within budget.
It’s also important to research the financial status of the builder/developer and whether they are on solid ground with pockets deep enough to ensure completion. If they need your down payment to meet the next week’s payroll, the investment, however tempting, is not a good idea.
Empresas Bern is an example of a developer that routinely offers great pre-construction pricing deals, and actually delivers. With over 170 successfully delivered projects built in and around Panama City, there is little risk that the project will not be completed and all the amenities realized.
Don’t consider a developer who has a history of promising a second swimming pool or an 18-hole golf course unless they have a proven track record of delivering. It is imperative you are certain of the developer’s history when it comes to the quality of construction. Shoddy construction can devalue your investment, force you into financing costly repairs both to your unit and the common areas, and may put the project on a delayed timeline. Don’t be afraid to ask about the ratio of sand to concrete and how much rebar is contained within the structure. Do your homework.
Everything Is New
Of course, there are lots of attractive points about buying in pre-construction even if you don’t count the sweet financial rewards. When you do take possession everything will be new. As with a new car, there is just something special about having a brand new condo that is 100% yours. It’s a feeling most people will never experience.
Buying in pre-construction should also allow you to help design your particular unit. If you want to create that arch and open space in the kitchen, you should be able to negotiate that with the sale. Walls can be moved and spaces elongated for a more open concept living space and a good developer is usually happy to accommodate small changes that will enhance your particular needs.
Think About The Lifestyle
Even with a sterling reputation and a solid financial foundation there are things to consider such as what type of lifestyle the building is going to offer. If you are currently happy in a suburban home, consider if the absolute beach-front, two-bedroom condominium is the right next move for you. Beach units may be considerably smaller that what you are currently using, so before you invest, know what will make you happy.
Different buildings also offer different atmospheres that you may want to take into consideration. Some developments are geared toward families taking vacations from the city, others are designed with the part-time retiree or business traveler in mind. Pay attention to the amenities, the messaging, and the photos you see in the brochure– an on-site jungle gym says something different about a building than an on-site dry cleaning service.
Is An Urban Setting Right For You?
There are lots of pre-construction projects on offer in Panama City located within walking distance of restaurants, cultural activities, a grand park and international schools. The newest area of development is Costa del Este, a planned development with first-world standards that is popular with business executives, multinational employees, and medical tourists.
When considering units, since you won’t be able to walk around in the actual space, make sure you are aware of the physical position of the home your are considering. Where will the light come in and how will that light be both for morning coffee and a late afternoon cocktail? How close will the neighbors be and will you be able to see them on their balcony and visa versa?
Financing Is A Little Different
If you are planning on financing your new purchase with a mortgage, buying in pre-construction can be a little more tricky. Talk with your lender and see what the rules are for pre-construction. You may want to consider a builder with the ability to offer financing. This will make it easier for you to purchase and will indicate just how strong the developer is regarding their financial position.
Don’t Leave Anything On The Table
When it’s time to negotiate the purchase there are a number of things you should consider. What kind of concessions is the builder willing to consider? If we move the wall in the kitchen before construction will there be an additional cost? What about tax breaks for new construction? What will the outside date be for delivering the units and if that date isn’t met, what types of consequences will be in place?
Look at the rules regarding the Homeowners Association, the various dues and when the developer will turn over control of the building. Make sure you are getting the best deal possible, while ensuring all the important things are covered.
Communication, Communication, Communication
Communication is vital in pre-construction purchasing. Don’t deal with a developer who is working out of a pick-up truck and almost impossible to chase down after you have signed the papers and transferred the funds. Have a dedicated person, or team of people, available to provide updates on progress or set backs (the weather does play a role). You are in trouble if things go silent.
Pre-construction units generally appreciate quickly if you choose the right developer, do your research and negotiate aggressively, while tying up some funds. Things worth something require a little work!
