When a developer plans a waterfront high-rise he has many hurdles to overcome, not the least of which is financial. Whether the developer is WCI or a local developer, financial backers want to gauge the interest in a project and in many cases require the developer to have reservations on a certain percentage of condos before the project is given the green light. This translates into savings for the real estate investor. The developer needs these presales to prove his project and secure his financing and he will give incentives to the early buyers.
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 deposit ranging from $10,000 to $25,000 with the title company to hold a particular condo. To encourage further price increases he will program increases at scheduled intervals throughout the condo pre-sale stage. This does a few things: It encourages people to buy condos early because prices are going up; and it is 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 indeed may increase values of the pre-construction condos.
FURTHER PRICE APPRECIATION
We like projects that are done in phases. These are normally condo buildings one, then condo building two, etc. In the past the best opportunities have been in buying the earlier condo buildings. Property values in our area counties have gone up nearly 15-25 percent a year for the past 5 years! Couple this potential appreciation with the planned developer increases and price increase could be considerable. For example, when condo building three, unit 801 is ready for sale it may be priced at $880,000, when the same condo in building one sold for $714,000, less than one year earlier. The unit 801 in building one has not even closed yet!
LIMITED SUPPLY / INCREASED DEMAND
There is a limited supply of buildable waterfront land. Developers can build golf courses and lakes, but it’s pretty difficult to create oceanfront, gulf front, or even riverfront - land. Many people move to Florida to be on the water. Over the next eight years the baby boomer flood will start to peak. Demand is expected to be even greater and waterfront supply will be limited. If you want to fine-tune your opportunity, buy penthouses. While the market may be more limited for these unit, there are certainly fewer of them and buyers will pay a premium to "be on top."
NO CARRYING COSTS
Lets examine how this works. On December first you decide you want condo 504 in building two. You put $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). On February first you put a total of 10% down to bind the contract. Two months later, you give a 2nd 10% deposit when the developer breaks ground. It will now take 18 to 24 months to build your condo (This will vary from project to project). Your deposits are 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). In some cases, the developer will ask for your permission to use part of your deposit strictly towards construction costs.
You have, in effect, tied up this condo for two years with just 10-20% of its value. You still get two years of potential appreciation.