By Chris Anderson, PhD
Everybody likes to buy something at a bargain price. Regardless if it is new pair of shoes, a new vehicle, or even a new Miami condo, everybody wants a discount. Normally, preconstruction investing can frustrate people because it is almost impossible to get a discount or negotiate value for a preconstruction condo; especially a Miami condo. In today's article, we look at how investors might actually find greater than a $100,000 discount, even in the blazing hot Miami condo market.
The potential trick is to purchase a resale condo that a previous investor is already selling, at a substantial profit, but where they are willing to SUBSTANTIALLY lower the price relative to newer offerings in the area. Let me give you an example straight out of the Miami condo market.
Right now, there is a Miami condo that originally sold out over 2 years ago when the prices were much lower but original investors are now interested in reselling their units. This project was one of the first high-rise projects in the downtown Miami area. Recently, similar units at ICON Brickell (on the opposite side of the Miami river) sold out the first tower in 2 days at an average of $550 a square foot. The second tower is now selling at an average of $600 sq ft.
To resell their units, the original investors want to keep their units VERY price competitive with the new Miami condo construction. These investors are motivated by the possibility of having to close on the unit which then requires a number of cash outlays. For some of these resells, we are seeing close to a $100/sqft reductions in price to around $500 per square foot. For the person looking to purchase a property long term, or an investor looking for a longer term horizon, this presents an interesting opportunity in the Miami condo market.
There is two strategies that the resell buyer might want to employ and again, we will use the Miami condo market as an example. Strategy 1 is to find resell properties that still have over 12 months before closing with the developer but are offered at a substantial discount relative to new preconstruction offerings. In this case, the purchasers strategy might be to resell at a profit before close if the Miami condo market rises fast enough in their favor. In addition, they always have to option of closing on the property and holding with, or without, a renter. While a statement like this is almost sacrilegious to a die hard preconstruction investor, I have seen many people make lots of money doing things that others do not want to do. Of course, these types of approaches are more appropriate for those investors with substantial financial means.
The second strategy is to AGGRESSIVELY pursue projects where other investors are about to close. In this case, you have a number of original investors that are hearing that loud clock ticking in their head . . . that is the clock counting down to close where they will 1) have to close on their Miami condo, 2) have to pay debt service, and 3) potentially try to rent out their Miami condo. You have to realize that these sellers are people that have already made (on paper) great returns, then they may have a lot of motivation to just get most of their profits and run without incurring additional expenses.
As an example, suppose you were able to negotiate a $130/sqft discount on such a Miami condo instead of only $100/sqft. Let's say that results in an additional $30,000 savings on a 1,000 sqft unit. From a motivated seller's perspective, what do they care if they have to drop their profit from $150,000 on a Miami condo to only $120,000. For the right kind of seller, the important thing is that if they know you, as the buyer, can make it painless for them with no additional cash outlays.
For a resell type investor, they may look at this and say well, I will rent the Miami condo out for a couple of years. No, their payments will not cover their mortgage and maybe they end up losing $800 per month. That is only $19,200 over the course of two years. Compared to that $30,000 extra discount they got, that is a small price to pay for the right individual knowing that they purchased their condo at $130 *1000 sqft = $130,000 less than what people across the river are paying for new Miami condos. If you do this type of investment, you need to establish the actual numbers for yourself since these numbers are only provided as an example.
There is one other subtle factor that also plays into the investor's thinking process. Looking at the map below showing the location of new and resell properties, you quickly realize that very little of this type of land exists for development anymore. That is, only a finite amount of waterfront land was originally available for development. For these early development Miami condos, they have the advantage of being developed on this premium land will future sites will be less desirable.
About The Author
Dr. Chris Anderson is the founder of http://www.GetPreconstructionDeals.com and is referenced in many venues including the New York Times and USA Today. Get his weekly, thought provoking articles by signing up today!
To Learn More About Our Programs, Please Click Here to Contact Us
You must have javascript enabled.
