Q: I’m thinking of investing in pre-construction properties in Tampa, Florida. Is that a real investment?
The kind of potential returns shown in some of these investments seems huge, and that makes me a little wary. What is your advice?
A: It would be terrific if the secret to great riches is buying on the blueprints, and then flipping the property for a substantial profit. Alas, making money in real estate is a little bit more complicated.
Still, you can get good deals in pre-construction pricing — but only if you really know what you’re doing and have the financial wherewithal to hang on even if you can’t get the place sold or rented after you close.
You’re right to be concerned. At the moment, parts of Florida are awash with condominiums. So, I’d check the market carefully in the neighborhood in which you’re looking. Next, make sure the developer is well-known, is financially secure and that your deposit will be held in a separate escrow account. If it isn’t, or the developer refuses to guarantee that, then head for the hills.
The danger is that the developer will commingle the funds, go belly up, and then you won’t get your deposit back.
Finally, be sure to have a qualified real estate attorney look at the contract before you sign it. Developer contracts are notoriously one-sided and you need to really understand what you’re signing.
Finally, remember that buying off the blueprints means thinking about what life (and the local real estate market) will be like in 2 to 4 years, when the project is completed.
Do your due diligence, try to understand the marketplace, and get a little lucky — that’s how to make a little money in pre-construction pricing.
April 16, 2007.