Risks Buying New Condos
Wondering if people can elucidate their thoughts/experiences with purchasing new construction condos. We are considering a purchase that we are very excited about and can afford. Our lawyer is warning us though that there are many pitfalls associated with the purchase: the building can begin closings with as little as 15% in contract (currently there…
Wondering if people can elucidate their thoughts/experiences with purchasing new construction condos. We are considering a purchase that we are very excited about and can afford. Our lawyer is warning us though that there are many pitfalls associated with the purchase: the building can begin closings with as little as 15% in contract (currently there are 30% with accepted offer or contract), and if we were to close and the remaining units not sell, we risk low owner occupancy in the building if it goes rental, and low appraisals if they reduce the prices. In both instances, resale and/or refinance due to low owner occupancy or low appraisal could be problematic when it comes to financing the unit in the future. Not sure how to evaluate this risk….we are excited to be in a position to buy something we love, but do not want to be rash and get “caught” in a tough position in 5 years.
Any suggestions for evaluating this risk? Experiences good or bad?
Thanks in advance!
I think you may also be making a mistake in thinking that 5 years is a realistic time period if you are thinking of the apartment as an investment. I think it’s going to take longer than that for real-estate to turn around and go back up.
If you are really only looking for a place to put your money for 5 years, you might want to consider something besides a new construction condo. If you really like the place and are willing to deal with some potential issues, but see yourself living there for awhile, it might be worth it.
My experience from a brand new condo rental in Williamsburg about 5 years ago – don’t buy if its been built by “Superior Construction Inc.”
The company name is sarcastic.
The main thing is to check the reputation of the developer and builder. There is a huge difference between a reputable developer using a seasoned builder and some of the newer entries to the NYC development scene. Things can go wrong with new construction and you need a “stand-up” team with a good name.
Stick to “seasoned” buildings with over 50% actual sales, not just representations of “signed contracts” which are difficult to confirm. Do not believe sales people’s statements which are often bs. Remember, these contracts may never end in an actual sale. You can check the Dept. of Finance “ACRIS” web site for actual transactions or some of the other web sites such as “Street Easy”. With sales below that threshold financing your purchase may be difficult. In buildings with low sales volume it may be difficult getting construction defects cured from a stressed developer. Check out the developer’s history and reputation by doing research on completed projects including violations placed and speaking to owners. This is the biggest investment of your lifetime and units are not selling like hot cakes. Take your time.
I bought into a new building which closed about a year ago. Fortunately 70% of the apartments were sold but then the financial crisis hit and the builder has had to rent all the remaining units. We only had minimal construction defects and they have all been addressed. Given the tough economy over the last two years I consider myself blessed.
Marion
not to beat the same drum, but who will you call to get to fix the inevitable construction issues? the offering memorandum requires warranties from the developer on this stuff, but this market will wipe out many/most developers — even the big ones are at risk. why not buy a “seasoned” condo? you’ll get a discount and the liklihood of fundamental problems will be less.
Not to mention the likelihood of problematic construction issues in a new building. If the developer has a longstanding record of putting up condos that have stood the test of time (10-15) years then OK. But a lot of these new buildings were rushed through the design and construction process and corners may have inevitably been cut here and there. You could run into foundation, curtain wall (exterior wall), roof, window issues in 2-3 years.
I would seriously steer anyone who asked me awau from a new development where the contractors have no longstanding reputation.
I would not buy a condo in a new building unless it has at least 70% in contract. Too many down sides. And in a market facing even more over-supply, it is all the worse.
And then with any new construction, there will be all the issues of things that ever quite get fixed, building management, under-estimated budgets and higher fees. And then of course, some day you will be paying real estate taxes.