Continued from page 1
Once developer gets needed licenses and permissions and has legal authority to sell units, you can enter into a hard contract. At time of signing hard contract, you have to make balance up-front payment. Usually, upfront payment is 20% of total cost of completed unit but can be more or less. You can pay by a direct deposit with builder or through a letter of credit. After signing contract and making an up-front payment, you do not have to make any other payment until unit is ready and you close deal and take possession.
However, before signing a hard contract you must be careful because by signing it, you are entering into a binding commitment to purchase unit, failing which builder can forfeit your deposit. In some states like Florida, you have a 15-day rescission period during which you can withdraw from hard-contract without any obligations. Before signing hard contract, you should check to see if you have rights to assign property to a qualified intermediary. If you would like to play safe, take a professional opinion on terms and conditions of hard-contract for preconstruction purchase.
The construction phase normally lasts for 6 months to 2 years (depending on project type) and you have an expiration date on hard-contract. If builder fails to complete construction and handover possession, you can claim for refunds and will have no legal obligation to buy unit. During construction period as building would move towards completion, there is typically several price increases but of course, you cannot absolutely count on that happening. If you are able to find a suitable buyer prior to closing, you can resell unit and claim your profits on closing of deal.
If you have not assigned contract until completion, you will have to close unit. Closing in preconstruction process is similar to all real estate deals and you have to make balance payment with additional payments like association fee as disclosed in "Good Faith Estimate".
There are a lot of things to consider when entering into a preconstruction investment and we strongly encourage you to learn all do's and don'ts. Hopefully this article has given you an overview of process.
Chris Anderson is a leading authority on preconstruction real estate investing. Get his 4 day e-mail course and a 33 minute video free today! Visit http://www.GetPreconstructionProfits.com