Buying in a new condo development

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Zubs
Posts: 7
Joined: Thu Nov 17, 2016 2:56 pm

Buying in a new condo development

Post by Zubs » Sun Apr 15, 2018 9:30 pm

I'm considering buying a condo during a pre-sale for a new development. The location is in the SF Bay Area. The complex meets all my housing desires in theory (still under construction). I would be planning on living there for 10+ years.

I was wondering if anyone has done this before and what their experience buying in a new development was like? What did you wish you had known beforehand? What was unexpected?

investorpeter
Posts: 128
Joined: Sun Jul 31, 2016 5:46 pm

Re: Buying in a new condo development

Post by investorpeter » Sun Apr 15, 2018 11:04 pm

I've done it before, and the end result was very positive, though there were major hiccups along the way. We entered into contract on a pre-construction condo in early 2008 pre-crash, and closed about 2 years later, with a lot of nail biting in between as far as whether we should abandon the deposit and not go through with closing, and multiple delays in completion date. In the end, the developer agreed to reduce the purchase price significantly, and we decided to close on a smaller unit. The NYC condo market rebounded well along with the stock market, and we ended up selling after 3 years, and made an excellent profit.

The most important thing I did when looking at new construction condos was to do a lot of research on the developer prior to entering contract, which gave me confidence the builder would complete the building (and they did, despite the sky falling during the 2008-9 crash). All kinds of people call themselves developers, some with very little experience. I wanted an established builder with a reputation to uphold, and demonstrated ability to complete the project. Other condos built around the same time in the same area had major problems such as losing financing midway through construction, going bankrupt, or completing construction but with shoddy quality.

Things to look out for:

1) Delayed completion date - The estimated completion date may be significantly delayed. Have contingency plans for where you will stay in the meantime. You will likely need something flexible, like a month-to-month rental, a lease you can break easily.

2) Proposed financials may not be realistic especially if the condo is offering an abundance of amenities (pool, spa, gym, etc.).

3) The pre-closing walk through is very important. Make sure everything is working. Check all the outlets, appliances, etc.

4) Obviously, you have to recognize the potential risks associated with a tech crash, real estate crash, etc. that could occur between the relatively long period between entering contract and closing. So have an exit plan/

I would say purchasing a pre-construction condo is only a good idea in a rapidly rising market because the offering price will likely be revised upwards a number of times as completion nears. In a stable or slowly rising market, it is probably not worth the risk.

Valuethinker
Posts: 35017
Joined: Fri May 11, 2007 11:07 am

Re: Buying in a new condo development

Post by Valuethinker » Mon Apr 16, 2018 3:49 am

Zubs wrote:
Sun Apr 15, 2018 9:30 pm
I'm considering buying a condo during a pre-sale for a new development. The location is in the SF Bay Area. The complex meets all my housing desires in theory (still under construction). I would be planning on living there for 10+ years.

I was wondering if anyone has done this before and what their experience buying in a new development was like? What did you wish you had known beforehand? What was unexpected?
Risks

- building never gets built if there is a downturn. You need to understand your legal position re the monies that have already been paid over

- building is not what is promised. Again what is your legal position?

(these vary by state as I understand it and I am not familiar with the US position)

Used condos are generally c. 10% cheaper than brand new ones (at least that is the metric I have heard) comparing like-for-like. And with an older condo you can assess:

- condo board, sinking fund etc. - financial condition of condo corporation
- deficiencies vis a vis construction etc.
- what sort of inhabitants the condo has - what are the rules re subletting etc?

SF is a rising market so "locking in" current housing price is probably a good thing although I do believe at some point the tech industry will have another of its periodic downturns. The question is how far the market will drop given the scale of the repressed demand-- I thought New York would plummet post the 2008 Crash but instead it dipped and went straight back up (Toronto & London the same).

If there is that recession though, does the condo actually get built? That, to me, is the key thing. You can afford a few lousy years in the property market given your 10+ year horizon, but what if the thing doesn't get built (or is not what you expected)?

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