Six Tips For Buying Pre-Construction Real Estate Overseas

Buying pre-construction real estate overseas can be a risky proposition, as many of the protections that buyers enjoy in the U.S. don’t exist in other countries. To help …

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Buying pre-construction real estate overseas can be a risky proposition, as many of the protections that buyers enjoy in the U.S. don’t exist in other countries. To help investors avoid unnecessary trouble, the folks over at Pathfinder put together a list of the 6 basic rules to success when buying pre-construction real estate. These rules range from only paying 30% upfront, and the rest on completion, to detailing out a delivery schedule in the contract. For more on this, continue reading the following article from Pathfinder.

You’ve found the perfect beach condo, mountain retreat or city crash pad. You’re excited, and can’t wait to sign the deal and make it yours.

But there’s a twist. This property isn’t built yet. You’re buying pre-construction or off-plan. It will take three years before it’s ready for you to move in.

Still, you’re getting a great price that makes the wait worthwhile. The market’s rising and you figure by the time it’s completed, you’ll have a nice cushion of appreciation.

But before you sign on the dotted line, don’t forget that you are buying pre-construction. So you need to follow some basic rules alongside the steps you’d normally take when buying a property.

Rule #1 is never pay the full purchase price upfront on a pre-construction property. It’s usual to pay 30% of the price during construction and the remainder on completion. Try to tie in any payments you make to specific progress (the floor or roof going in) rather than a timeframe.

You should pay the balance when the property is move-in ready, and when you can transfer the title to your name. By move-in ready, I mean that the building is completely finished and that the builder or developer has received an occupancy permit from the local authorities. Without that permit, you can’t get title transferred.

With lots, again, you should only close the sale when you can get title. That’s only possible in many countries with a certain level of infrastructure. Outline in the sale contract or purchase agreement how long that will take and what you’ll get (paved roads, community water system, etc.).

That’s part of Rule #2, check the spec. Don’t leave this to the developer. The more detail you add to your contract, the more likely you are to get what you expect. Detail everything. Start with the exact size of the home, broken down by each room and hallways, patios, balconies and storage space.

Describe the location of the unit, and the views (hugely important if you’re paying extra for ocean views). Break down the finishes. Don’t run with “tiles on bathroom walls”. Instead, use terms such as “6” x 4” off-white marble tiles covering bathroom walls”.

Attach floor plans, renders, photos and finish samples to the contract as back-up. And when I say attach, I don’t mean with a paper clip. Attach them legally. So your contract should state “a condo of 95 square meters with two bedrooms and two bathrooms as per Addendum D”, where addendum D is the floor plan.

Rule #3 is all about timing. Get a very clear timeframe for completion and delivery of the property. Most developers don’t finish on schedule. But don’t allow the developer to add a 12-month over-ride period where he gets off scot-free. He should pay a penalty if he is unreasonably late.

Rule #4 relates to checking for adjustments. You agree to pay $200,000 for your condo. But at closing the purchase price becomes $220,000. That’s because an adjustment clause in the contract states that the developer can increase the price by a fixed percentage at closing if his costs rise. It varies, from 2%-10%. The increase should tie to official figures that prove that the cost of labor or raw materials rose during construction. If you take advantage of developer financing, the adjustment is made on a monthly basis and added to your finance payment. Make sure you understand how much more you could pay with these adjustments.

Rule #5 is to stay in touch with your developer. In your contract, ask that you get regular updates, construction photos and estimates for completion. Also ask for proper receipts and acknowledgements of any payments that you make.

Finally, Rule #6 is to make sure you’re covered if something goes wrong. The contract should give you a decent timeframe for snag-checking, and outline what kind of builder’s warranty you get. Make sure to include a clause that covers what kind of steps you’ll take if you can’t resolve an issue with the developer, whether that’s mediation with a trade body, arbitration, or court action. In some countries, if the developer doesn’t finish the property, you’ll get some of your money back. That’s not the norm, though.  Read the contract carefully and ask your attorney to explain what happens in different worst-case scenarios.

Buying pre-construction property makes a lot of sense in the right markets. Following these six basic rules will help put you on the right track for a successful purchase – and getting the dream home that the developer promises you.

This article was republished with permission from Pathfinder.

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