Investing in pre-construction properties is an attractive option for those looking to acquire residential or commercial units at competitive prices. However, this type of investment involves a complex process that requires understanding and planning. Below, we explain everything you need to know before deciding to invest in pre-construction.
Pre-Construction Phases and Their Impact on Pricing
- Pre-construction properties go through several phases, each of which affects the price and payment requirements. These stages typically include:
- Reservation: In this initial phase, the buyer expresses their intention to acquire a unit within a specific price range. A deposit of 10% of the total value is usually required.
- Contract: This is when the purchase of a specific unit is formalized at a fixed price. Upon signing the contract, an additional deposit (usually 20%) is made, and a 15-day cancellation period begins, during which the buyer can withdraw without penalties.
- Groundbreaking (Start of Construction): Once construction begins, another deposit is required. This stage marks the physical start of the project.
- Mid-Construction: When the building reaches approximately half of its height (exterior only), another payment is required.
- Completion of Structure: When the final floor (exterior only) is completed, another deposit is made.
- Closing the Transaction: At this final stage, the property deed is executed, and the full payment is completed.
For single-family home or townhome projects, the stages and payment percentages may vary. For example:
- 10% at contract signing
- 5% at the first land movement
- 5% at the start of construction
- 10% when the roof is placed
- 70% on closing day (final deed transfer)
Key Terms You Should Know
Unilateral Contract: The developer drafts the contract and sets all conditions. The buyer cannot modify the terms.
Cancellation Period: According to Florida law, the buyer has 15 days from contract signing to cancel without penalty if they disagree with any clause.
Non-Transferable: The contract is signed under the buyer’s name or a company they own. The property cannot be transferred or sold to a third party before completion unless the developer authorizes it.
Payment Structures for Pre-Construction Projects
In most projects, payments are structured as follows:
- 10% at contract signing
- 10% between 60 and 90 days after the first deposit
- 10% at the start of construction
- 20% at mid-construction
- 50% on closing day (final deed transfer)
For single-family homes or townhomes, the percentages may vary, as mentioned earlier.
Important Considerations
- Non-Contingent Financing: If the buyer fails to secure a loan for the final payment, the developer may retain all deposits made. For this reason, pre-approved financing is highly recommended.
- Developer’s Default: If the developer fails to meet the agreed terms, they must notify buyers in writing and have 7 days to resolve the issue. If not, buyers can claim their deposit with interest.
- Delivery Timeline: The completion time is typically 2 to 3 years if the contract is signed at the start of the project. This may vary depending on when the property is purchased during the development.
- Finishes: It is crucial to verify the delivery conditions. In South Florida, properties are often delivered in "Decorator Ready" condition, meaning they may lack paint, closets, or flooring. However, they typically include appliances, kitchen cabinets, and finished bathrooms.
- Closing Costs: Closing expenses vary depending on whether the purchase is made in cash or financed. Cash purchases: Closing costs range between 3% and 4% of the purchase price. Financed purchases: Costs increase to 6% or 7% due to additional expenses such as mortgage registration fees and loan commissions.
Investing in pre-construction can be an excellent opportunity to acquire properties at competitive prices, but it requires careful planning. It’s crucial to understand the process stages, contract terms, and associated costs. Working with financial and legal advisors is highly recommended to ensure a secure and profitable investment.
If you’re considering this option, make sure to thoroughly research the developer and project and understand all details before signing any contract. Ready to take the first step? Contact us today for personalized guidance and start your pre-construction investment with confidence and security!
