When a developer plans a waterfront high-rise
he has many hurdles to overcome, not the least of which is financial.
Financial backers (bankers) want to gauge the interest and absorption rate in a
project. In many cases, the developer is required to have reservations on a
certain percentage of condos before the project is given the green light.
This automatically translates into savings for the buyer. The developer
needs these presales to prove his project is viable and to secure
financing. To accomplish his objectives the developer will give incentives to the
Prices generally run around $650 per square foot for bay front and Intracoastal condos while docks
start around $125k. Gulf front properties are in the area of $1,000 per square
foot. Therefore, a 1,500 sq foot bay front or Intracoastal property will cost around $975,000
and exceed $1 million with a dock. Gulf front units of the same size will run
$1.5 million for a ground floor unit. Penthouse units are larger (around 3,000 sq ft)
and sell in the $1,000 per square foot range to cost over $3 million.
In many cases
the “first day” price will be lower than the price for the subsequent condo
purchasers. Many times the developer will give an extra incentive to those
that reserve a unit by placing a $10,000 deposit with the title
company to hold a particular condo. (The more exclusive projects have a
higher reserve requirement.) To encourage further sales the developer will
program increases at scheduled intervals throughout the condo pre-sale
stage. This accomplishes several things. It encourages people to buy condos
early. Why? Because prices are going up and it has evolved into a
self-serving prophecy. Buyers see the price of the condo going up, they
want to get in on the increases, it creates more demand and may indeed
increase values of the preconstruction waterfront condos.
FURTHER PRICE APPRECIATION
In the past, the best
opportunities have been in buying the earlier condo buildings. Property
values in Florida increased an average of 30%
in 2003 & 2004 and 12.7% in 2005 and as real estate investors know, waterfront condos much
more. Couple this potential appreciation with the
planned developer increases and price increases could be considerable. You
can view the Pinellas County price increases by community and complex
There is a limited supply of
buildable waterfront land. Developers can build golf courses and lakes, but
it's pretty difficult to create oceanfront or gulf front – or even
Intracoastal - land. Many people move to Florida to be on the water. There
are 78 million baby boomers who will retire by 2026 with the bell curve
peaking around 2020. These numbers vary slightly by source, but Florida is
always listed as a preferred retirement location meaning demand is
expected to be even greater – and waterfront supply will be limited. If you
want to fine-tune your opportunity, buy penthouses. There are certainly
fewer of them and buyers will pay a premium to “be on top”.
NO CARRYING COSTS
Let's examine how this works.
This month you decide you want a waterfront condo. You put down a $10,000 reservation
deposit on the unit since it is a new development and the condo docs and
permits are not ready. Three months later, these items are ready and it
goes to contract. You decide to proceed. (By the way, if you decide not to
proceed, you can get your $10,000 back). You raise your escrow to a total of
10% down to bind the contract. The project will begin construction in 1-3
months when an additional 10% may be required. It will now take 7 to 18
months to build your condo (this will vary from project to project). Your
escrow is held with a title company – not the builder. (This is an
important point. Your money will be secure and can be returned to you in
the case of nonperformance by the builder/developer.) You have, in effect,
tied up this condo for one to two years by investing just 20% of its
initial value. You
can still reap the benefits of potential appreciation without having a
mortgage payment or paying association fees.
If you would like to receive an information packet on various preconstruction
name, your contact information (mailing
address) and telephone number (required by developer before they will mail
you a packet). Specify the type of property
you are looking for and a price range. If you like what you see in the
preconstruction packet, be prepared to mail a certified check
for $10k (most complexes) to $40k (exclusive complexes) within a couple of days to get added to the list of potential
FHA FINALIZES 'ANTI-FLIPPING FRAUD' RULES
WASHINGTON, D.C. -- June 12, 2006 -- Beginning
July 7, only the homeowners listed on recorded documents can sell
properties slated for Federal Housing Administration-backed financing,
according to new FHA rules intended to discourage property flipping.
Additionally, FHA financing will not be available for homes sold within 90
days of purchase. Sellers will have to provide additional valuation data
to unload properties between 91 and 180 days after the last transaction, in
cases where the new sales price is 100 percent or more higher than the
previous sales price. HUD, Fannie Mae, Freddie Mac, lenders unloading
their real estate owned (REO) portfolios, local or state housing agencies,
nonprofits with HUD permission to purchase discounted REO properties,
inherited properties, and dwellings located in presidentially declared
disaster areas are exempt from the anti-flipping rules.
Source: Realty Times, Kenneth R.