Preconstruction Miami Real Estate Surges On
You may have noticed that Miami real estate — specifically, preconstruction — has been the center of attention in the press lately. There have many predictions about the future of this dynamic market, and Miami preconstruction investor and realtor Andrew James has shed some light on what this investment craze is all about, and what he sees happening in the near and distant future.
Essentially, preconstruction investing is buying real estate properties prior to their construction. A condominium that will be built in two years, for example, can be purchased with a small deposit now — to hold the condo and, ideally, capture the price appreciation during the two years, which is the time it takes for the condo to be built.
Miami preconstruction is particularly attractive to investors because there are no “carrying costs” during the two years until the condo is built. There is no Florida home loan, no taxes, no expenses at all. A buyer does not need to manage tenants or qualify for mortgage. Developers will sell you a unit regardless of what your credit report looks like.
It is easy enough to calculate your return on Miami preconstruction real estate investing. If the Florida condo is priced at $500,000, a developer will require a 20 percent deposit in most cases. You will usually be asked for 10 percent at contract time and additional 10 percent as construction begins. So you are looking at putting $100,000 down overall.
If that seems like a lot for a building that does not even exist yet, remember that the Miami real estate market has been appreciating over 20 percent annually. Using that rate, the condo that has not been built yet would have already appreciated from $500,000 to $600,000 at the end of one year. Which means you have made $100,000 already on your $100,000 investment. That is a 100 percent return in one year.
Be aware of the fact, however, that developers are financial managers out to make you money, but people in the business of building real estate. They understand the real estate market and they make the most profit by selling for the highest price, so investors not making the right decision could be burned if they do not take this into account. So, do your own research, then find a good Realtor that understands the market and preconstruction in particular.
Contacting the developer directly is taking a big risk, as its sales staff has no loyalty to you at all. Go with a knowledgeable local realtor, who will be paid commission by the developer (so your price is the same), to get a good and safe deal. As a simple rule, waterfront real estate is the safest investment. Many transplants move to the area each year and most will be angling for waterfront or oceanfront Florida real estate.
Miami real estate has been very rewarding to its investors over the long run, but prices are always controlled by greed and fear — the primal emotions that drive economic markets. So use caution and think it through. Rising Florida home loan rates might not have great impact on Miami real estate, however, since it is such an international market. Droves of domestic and international buyers (who are enjoying the extended buying power from the weak U.S. dollar) are still investing heavily.
Savvy and long term investors who exercise proper risk management will thrive. Remember this cardinal rule if you are considering Florida home loans and real estate investments.
