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Can You Make Money Buying Pre-Construction Downtown Condos?

Don't wait to buy real estate, buy real estate and wait.
                                                

                                                                                                T. Harv Eker

Many people try to make money playing the pre-construction game. This is where you get in early on downtown condo project, neighborhood or other new build in hopes of making money by the time the property is completed. You see this more often in new downtown condo towers because they typically take about two years to build. 

So, is this a good way to make money?

Let's track some past sales. The gain/loss figures below have a 7% fee to cover the costs of the sale (Realtor commission, doc stamps on deed etc.)

Signature Place condos

Signature Place

Some of the buyers in the Signature Place condos did well, whereas others lost money. It seems like it all depended on when they sold the property.

In 2009 when Signature Place was finished the real estate market was getting back on it's feet. As hard as it may be, this is typically a good time to buy. However, compare unit 1806 to unit 1808. They purchased at the same time and both sold in 2013. One made $107,250 while the other lost $45,300. I don't know details of the sale other than what is on MLS so perhaps there are unknowns that make up the discrepancy. 

Take a look at the owners that sold in 2015/2016. They made quite a bit of money.

  Sq. Ft.  Purchase Date Sales Price Sale Date Sales Price Gain/(Loss)
Unit#1108 1,829 02/18/2010 $575,000 11/10/2016 $807,050 $175,556
Unit#1204 1,018 12/31/2009 $419,250 6/24/2015 $520,000 $64,350
Unit#1708 1,829 8/25/2010 $499,000 1/28/2011 $550,000 $12,500
Unit #1806 1,447 9/6/2009 $547,500 1/31/2013 $540,000 ($45,300)
Unit #1808 1,829 9/6/2009 $660,000 5/24/2013 $825,000 $107,250
Unit #2102 1,465 9/18/2009 $521,775 7/6/2012 $545,000 ($14,925)
Unit #2105 1,269 7/21/2009 $547,500 10/9/2014 $630,000 $38,400
Unit #2107 1,996 3/22/2010 $513,000 2/17/2016 $875,000 $300,750
Unit #2108 1,829 8/5/2009 $660,000 6/26/2015 $911,000 $187,230

Ovation

Ovation condos St. Pete

Ovation condos came out of the ground when the real estate market was shaky (see this article) This is probably why many of the owners at Ovation made money versus the 400 Beach Drive condo buyers (see below) that purchased in the overheated 2005 market.

Take a look below at some of the money made in Ovation. Warren Buffet's advice of 'buying when everyone else is selling' probably held true in this case. 

  Sq. Ft.  Purchase Date Sales Price Sale Date Sales Price Gain/(Loss)
Unit#1401 3,660 10/20/2010 $1,850,000 05/19/2015 $2,330,000 $316,900
Unit#1501 3,660 06/04/2010 $2,020,000 6/24/2015 $1,690,000 $448,300
Unit#1801 3,660 11/15/2009 $2,370,000 1/28/2011 $2,300,000 $231,000
Unit#1805 5,330 04/16/2010 $4,550,000 05/23/2016 $6,900,000 $1,867,000

400 Beach condos St Pete

400 Beach Drive

This condo was finished in 2007. Which means that many people signed contracts at 2005 prices. This was near the top of the market before the real estate market crashed across the country. 

As you can see by the examples below, many people lost money. Unit 1401 turned a profit because it was held until the market bounced back in 2015. The rest of the 400 Beach condo owners below lost money because they sold them before the prices bounced back enough. 

  Sq. Ft.  Purchase Date Sales Price Sale Date Sales Price Gain/(Loss)
Unit#1001  2,397 1/30/2008 $835,000 9/2/2011 $675,000 ($207,250)
Unit#1002 2,597 12/17/2007 $996,000 5/27/2011 $835,000 ($219,450)
Unit#1103 3,287 1/30/2008 $1,173,970 7/16/2012 $1,150,000 ($104,470)
Unit#1201 2,395 12/14/2007 $905,000 2/27/2014 $970,000 ($2,900)
Unit#1401 2,395 01/04/2008 $865,000 05/01/2015 $1,171,000 $224,030
Unit#1402 2,597 01/08/2008 $1,010,000 04/01/2011 $676,000 ($381,320)
Unit#1503 3,287 01/08/2008 $1,377,000 09/20/2013 $1,212,750 ($249,143)

Market Cycles

Like other markets, the real estate market runs in cycles. There are a myriad of influences like consumer confidence, supply, demand, interest rates, political environment, etc.

Looking at the small sample size above it looks like those that profited the most were those that bought when the real estate market was soft and sold when the real estate market was strong. 

Remember that people don't always buy property for investment purposes. Sure, it is nice to make money on properties you own but we all need shelter. That is the primary reason to buy real estate.

If you can time a market, you should be selling when the market is euphoric and buying when the market is despondent

Conclusion

The answer to the question 'Can You Make Money Buying Pre-Construction Downtown Condos?' is Yes. But, as you can see above, you can also lose money too. Just because you are buying early in a downtown condo project (or any project for that matter) doesn't mean that you will make money. 

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