Monday, April 10, 2006

New Construction I
The Seattle real Estate Blog VII

A pre-sale purchase occurs before construction of the property is complete. For example, the condominium units at dwellRoosevelt are still under construction, but most of them have been sold already. The buyer must make an earnest money deposit (usually 1.5% or less of the purchase price) and come to mutual acceptance on a purchase and sale agreement with the seller. If there are no custom upgrades to be made, then there are no other payments due until closing.

This is a great way to leverage a relatively small investment for a healthy return. In the case of a $320,000 condominium unit at dwellRoosevelt, the earnest money deposit would be something like $4,800. The appreciation rate for two-bedroom condos at dwellRoosevelt, from the time they were listed in January through today, is approximately 7%. This means that an investment of $4,800 in January has brought a three-month return equal to $22,400. Sounds great, and it is, but this is only part of the picture. The investor could not simply walk away right now with $22,400.

The reason that no money other than the earnest money has had to be paid since January is that the down payment and the mortgage payments are not collected until the transaction closes, and the transaction cannot close until construction is complete and the condominium has passed the final building inspection. It's also important to note that interest on the mortgage does not begin to accrue until closing.

For more information about new construction or pre-sale purchases, please visit the blog Seattle Real Estate Professionals, keep watching The Seattle Real Estate Blog and subscribe to RSS feeds for both.

Thanks for joining the conversation!


At Fri Apr 21, 08:35:00 PM PDT , Blogger KaptainMoney said...

Yup...This is a great way to invest in real estate. It brings back a great return on your investment. Especially if you deal with higher priced homes.

Thanks for the information.



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