Buying Preconstruction in South Florida Pros & Cons

8 Replies

I live in South Florida and I'm looking to invest here, but I would like to get some discussion going regarding buying preconstruction properties to hold and use as rental income.  There are some pockets of development happening that are in areas that are up and coming, and the prices are in my price point.  Has anyone bought preconstruction before, had success, or failed that could put some perspective on this? I understand most of the pro's involved in buying preconstruction, but I would like feedback.   (Note: These are phase one developments that have not even started construction yet, so prices are phase 1 prices and it will take about a year to be constructed.  Typically a deposit of 2K is required to reserve the spot, 2K at groundbreaking, and the loan does not kick in until the property is complete)

Originally posted by @Bruce Bloom :

I live in South Florida and I'm looking to invest here, but I would like to get some discussion going regarding buying preconstruction properties to hold and use as rental income.  There are some pockets of development happening that are in areas that are up and coming, and the prices are in my price point.  Has anyone bought preconstruction before, had success, or failed that could put some perspective on this? I understand most of the pro's involved in buying preconstruction, but I would like feedback.   (Note: These are phase one developments that have not even started construction yet, so prices are phase 1 prices and it will take about a year to be constructed.  Typically a deposit of 2K is required to reserve the spot, 2K at groundbreaking, and the loan does not kick in until the property is complete)

 Hi Bruce, I do not have any experience with pre-construction properties. It is something that I am very interested in learning more about, glad to see this post. 

@Bruce Bloom Kinda hard to cash flow on preconstruction properties unless you sell your interest (to capitalize on an increase in price) or prefer to have your capital tied long-term (hoping that the developer finishes the project). 

Buying preconstruction condos was a good play for a few years in Toronto/GTA but as soon as the market turned people realized how risky that strategy is. 

It all depends how much capital you can patiently deploy and for how long. Multiple 2K deposits + having the ability to close on loans in the future (when there is uncertainty at the top of the market) can add up.

Originally posted by @Omar Khan :

@Bruce Bloom Kinda hard to cash flow on preconstruction properties unless you sell your interest (to capitalize on an increase in price) or prefer to have your capital tied long-term (hoping that the developer finishes the project). 

Buying preconstruction condos was a good play for a few years in Toronto/GTA but as soon as the market turned people realized how risky that strategy is. 

It all depends how much capital you can patiently deploy and for how long. Multiple 2K deposits + having the ability to close on loans in the future (when there is uncertainty at the top of the market) can add up.

 here we go again rampant speculation in the new construction in FLA...   deja vu all over again. 

if you intend to close these and keep as rentals.. its just like buying any other rental property.. cap ex should be calm the first 10 years... and houses should rent easily.

@Omar Khan it's not a condo.  It's a townhouse in an up and coming city in South Florida.  Due to overpopulation in Miami, developers are moving further South and there is rarely instances of developers not completing projects here in Miami.  The city is rampantly developing.  

Dear Bruce: really depends what is more important to you: (1) potential for appreciation = different questions than; (2) current (once constructed & rented, of course) cash flow = different analysis. Challenging to secure both in Miami metro for pre construction. 

Yep, lots of new construction in Homestead and the Redlands. A $2k deposit seems awfully low though. You just have to look at price verses rents. 

I have been investing in the last decade in S Florida. My advice is "Stay away". There are so many variables that go into appreciation:

1. Builder creating speculation and artificial inflation.

2. How the neighbhorhood takes shape in future. Demography/school rating/amenities etc

3. What is the Rental going rate $/sq ft in that area? This will likely take a dip as more inventory enters/floods tha market.

4. What if the real appreciation is 3-4% per year? (Normal market)

AS a displined investor I will not throw my $$ hoping for future appreciation and hoping all is good.

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