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Buying in Preconstruction


Buying in Preconstrution;

It's hard to visit one of Mexico's most popular resort area and not see some construction work going on these days. Many developments in this area are modern condominium buildings with a lifestyle and a concept entwined in their design. To create more than just a group of homes, developers often attempt to create a community or 'village' feel with each project. This adds  value to the properties and gives buyers additional incentives to acquire them.

Buying your home in Pre- construction is one of the most popular ways to invest in property in The Riviera Maya. This guide will help you to understand real estate developments and guide you through some key aspects and help you to make informed choices:

About Property Developers in the Riviera Maya.
Property developers with deep pockets have weighed-in to the real estate market investing, collectively, not just hundreds of millions but tens of billions of dollars of capital in the last few years. The developers are not throwing their money into the market idly. They are doing their homework: choosing their locations carefully, conducting extensive research about what their clients want in terms of services, features and facilities, and they are building not just homes but entire new communities where people, spaces and environment may blend and interact successfully together. Some development projects also encompass ecologically-sustainable practices and new technologies. Rain water recycling, sustainable landscaping and solar panels are just a few of the initiatives being implemented to new buildings in some Mexican development projects today. Expect to see a substantial increase in these types of eco-initiatives in the future. As a result of the care and attention being paid to these projects, the people who are buying properties in these new developments are moving into a new lifestyle, not just a new home. There are a number of sensible reasons why buying a home from a property development is proving popular with investors. These are discussed in detail a little later.

Most of the major investments are being made along Mexico's coasts
At sea-level, they provide year-round warmth, and a fantastic environment in which to live, work or retire.
Mexico's established coastal resort areas, which were there long before the new developers, have themselves been planned and developed over decades so the availability of, and access to, local services, utilities, transport systems and health care exists already in most instances, and where these don't exist, the real estate money is bringing with it an influx of investment in new local services and facilities.  Indeed, the social role being played by property developers in The Riviera Maya is substantial and it is one of the reasons why State and local authorities are keen to work with and support real estate investment projects: realty development brings more people and their energy, experience and capital to the area. Over time, the effect of their contribution to the new community and the continual re-investment can create a significant and long-lasting transformation.

Buying Real Estate Off Plan.
What is an 'off plan' investment in Mexico?
Buying a property 'off plan' is like buying 'off plan' anyplace else in the world: it is the investment in a property which has not yet been built, that is, it is simply at the 'planning stage'; therefore you are buying it "off the plan" so to speak. Property developers like off-plan sales as it helps their cash-flow: a building is partly paid for before construction begins. It also helps them to gauge interest in the market and even the price level which people are prepared to pay for properties of a particular project.

There is an additional element of risk with off-plan purchases which does not exist when buying a pre-built home. In return for the additional risks, off-plan investors are enticed with a number of incentives. The most prevalent are a discount on the sale price, a detailed or tailor-made choice of decorations and furnishings, and the opportunity to pick from the 'best available lots' within the development complex.
Off-Plan investments have become more popular as property buyers have become more affable towards investment risks of various types in return for a potential reward: usually in the form of a generous discount against the estimated market price, proffering the potential of a bigger capital gain from the outset.

Making a profit in a rising market is straightforward with off-plan investing; however, care must be taken to gauge market conditions and you must have an excellent understanding of true market values locally in order to negotiate the right level of discount for the additional risk you assume as part of the contract.

The process of buying 'off-plan' in Mexico.
Like other countries, the process of buying 'off plan' in Mexico is straightforward: you agree to buy a certain property, based on an architect's plan, usually with staged payments. Payments are completed in agreed stages, with a final payment stage usually held back until you are fully satisfied with the delivery of the property and facilities you expected under the terms of the contract....also take a step back and reflect upon what is being offered and compare that with your personal needs and goals. Clearly, there exist additional risks to off-plan property investment, but these may be offset by the potentially greater rewards on offer.

Many people have bought and continue to buy properties successfully 'off-plan' in Mexico and enjoy the benefits of this type of investment. Read the next section for a check-list of considerations which are relevant whether you are buying off-plan or once the development is complete.

Key Considerations for Buying a New Build Home.
There are number of important considerations to reflect upon when you approach a property investment in Mexico and additional considerations when buying from a brand-new home from a development project:

Check the Developer
Check out the developer. What other projects have they worked on? What projects are they working on now, other than this one? When were their projects scheduled for completion and when did they complete? What is the local reputation of this firm? What are previous client's experiences of dealing with the developer. Don't be afraid to ask for references.
Don't take prominent or extensive advertisement placements in magazines and newspapers as proof of establishment. Ask locally and do your research. Don't be afraid to ask incisive questions which put the developer on the spot about their reputation and track record.

If you are buying off-plan.
Here are some additional pointers if you are buying off-plan:
• Remember that when you buy off-plan you are taking a commercial risk on the development as well as the developer;
• Ask your Realtor to check the developer's credentials, permits and licenses; • Get an experienced professional to draw up a proper contract that is very specific about what happens if things don't go to plan;
• Remember that you are handing over cash for something that only exists in concept but the money you are handing over is real;
• Do your homework and be knowledgeable about the developer and the local market. Check The Development Plans! If you are buying off-plan, be sure to have the plans checked thoroughly, preferably by a legal professional with extensive experience in the field of 'off plan' property investments.
It sounds obvious to say 'check the plans', but some people really do buy on the face value of the marketing brochures and pretty model mock-ups on display at the sales office or from “Casual” Realtors It may work out fine, but not checking the plans increases the risk of your investment.
Some plans never get approval from local authorities, some plans come up against a plethora of other complications -- too numerous to mention here -- but suffice to say that a plan is just that: a plan, a proposal -- and you need to stay rooted with that truth when you sign the contract.
When you are buying a pre-built property, check the plans and permits carefully.In all cases, the developer's permits and licenses should be verified when you buy a pre-built property -- the same diligence should be exercised when buying 'off plan'.

Check The Location AND the Locality.
Consider the location for your personal and, perhaps, professional needs. When you are happy with the location, check the locality where the development is situated (or planned to be situated). Also check the surrounding neighborhoods. The nicest development in the world won't bode well in the wrong place. The locality of a property development will have a significant impact on the value of the property over the long term. If you are buying off-plan, it's even more important to double-check this consideration. Getting informed mitigates risk and helps you to better value (price) the property you are investing in.

Internet research is a fantastic way to find opportunities and conduct your background checks, but there is no substitute for visiting the area personally and spending some time there. Don't just take the Realtor or developer's word on the potential. Look at the other developments being constructed nearby and consider their impact, positive and negative, on your investment.

If the locality is good, chances are that the potential for other quality projects being developed exists too (along with a buoyant market for those). Also consider what the secondary market (i.e. selling your property on to others in the future) will be like now and in future -- characteristics of the locality will affect this, too.

Check the Total Costs.
Buying any real estate entails more than just the price of the property: there is a range of closing costs and taxes it's relevant whether you are buying from a development or not.

If the development is part of a condominium building, or a gated community of some type, there will be monthly fees to pay in addition to any other costs of ongoing ownership.
Find out what the HOA charges are going to be and remember that these can rise year-on-year. Check the contract carefully or, better still, get a qualified and experienced professional to check it for you.

If you are buying 'off-plan' you should negotiate a very substantial discount to make the additional risk worthwhile. The discount should be based on your own impartial assessment of the estimated value of the property when it is fully completed and delivered. If you cannot see enough reward for the risk you are buying into, be prepared to walk away if you cannot negotiate a better deal from the developer. Your 'off-plan' risk investment should represent a value proposition and the developer knows that, too.

Check the Rental Yields.
A rental yield is a simple calculation that works out how much "gross interest" you are earning for your money (in this case, the investment in the property purchase) through rental income. For example, if you spend $100,000 on a property and rent it out for $10,000 a year, that is a gross yield of 10%. It's a good idea to compare this figure against other asset incomes, including cash or bonds, to give you an idea of the value and risk of the investment. Remember that the gross yield does not take into account operational costs (e.g. agency and maintenance fees) or interest on any financing you use to acquire the property. You'll need to make this (gross yield) check if you are buying the property as a rental business: i.e. you plan to rent it out for part or all of the year. To make the calculation you'll need to make a very good estimate of the rental income. If it's a brand new property the only way to do is to compare rents in the location AND locality of similar-type properties to the one you will rent. Be realistic with your comparisons and be prudent with your forecasts.

Checking for Snags on Delivery.
When you buy from a property developer, you are buying a brand-spanking-new property. Like anything bought new, you can expect a certain standard of finishing (in line with the price and category of the development)

When you take delivery of your new home, be sure to check it thoroughly for 'snags'. Just as you would check a new piece of clothing or a new appliance to make sure it is in perfect order and working, so the same diligence is required with your new home.

The Snagging List.
Be methodical with your list: go around every inch of the property and check for 'snags'. Developers are often working to tight deadlines and they miss things or accidentally damage something while they are putting something else in place. Small snags may include places that need a lick of paint, or need 'making good' after a scrape or incomplete finish. Check doors, windows and their frames. Check bathrooms, toilets and around basins for leaks, gaps or cracks -- check the kitchen area for leaks and craftsmanship too. Most snags are not serious and only require some re-decoration, repainting or professional finishing to put things right.


Serious snags include incomplete installations of basic services (plumbing, electric, gas) incomplete or non-functional furnishings or appliances (e.g. fitted kitchens or dishwashers), missing features promised in the contract, or even structural problems. Some snags may not be noticed until later, for example, when it rains you may discover that part of the roof leaks. Make a detailed inventory of all your snags. Give each snag a reference number -- any number will do -- something to identify it when you are corresponding or talking with the developer about it, so you both know which snag is being referred to and, when it fixed, you know exactly which one is cleared. Without numbers, you may end up getting confused about similarly labelled snags in different places, confusing yourself and the developer. Using reference numbers ensures that the inventory of snags is properly logged, managed and discharged. You need to actively manage your snag-list as well as the developer until the list is clear and you are completely satisfied that the property and its furnishings are delivered to the standard you expected and/or contracted for.

Advantages and Disadvantages of Buying a New Build Home.                   

As with any type of investment, buying a new home from a developer (instead of buying in the secondary market) has its pros and cons.

Advantages of buying a brand new home.
Tailor-Made Decor: Buying a brand-new home enables you to choose the interior decor right down to the last detail in many cases. Some developers also work with companies who will provide a complete decorating and furnishing service for you if you want it. However, despite the flexibility, some buildings will require you to keep the wall coverings simple while the building settles and dries out. This can take up to two years, depending on the local climate. Modern, Energy Efficient: Most new build developments use the latest techniques and modern materials which make the property energy efficient. As mentioned earlier in the guide, some even have eco-friendly features like rain recycling and solar panels built-in to the design. Many modern designs also allow large quantities of natural light to pour in to the building, lessening the reliance on artifical light -- but do check as each development is unique. Minimum Logistics: No one has to move out of the property before you can move in and a good developer will have everything arranged for you on your closing date. The property will be ready for you to move into, and in some circumstances the whole place may be furnished right down to the last teaspoon.

Community Benefits when buying into a development.

You are often buying into a community. This means that you may have access to shared services and facilities as part of your normal maintenance fees which you would otherwise need to pay for, e.g. a golf course, a swimming pool, a lake, parklands, etc. Some gated communities also offer local 'focus points': a club house, a gymnasium or spa, or other facilities where residents can meet and socialize. Safer, More Secure: Modern homes have the latest electricity and gas safety technologies installed.

Cheaper Insurance.

Insurance premiums are usually lower on newer properties too, although it does depend on where the property is located and what you are insuring against.
Lower Maintenance: Maintaining a newer property is much less expensive than maintaining an old one. Over time, as the property ages, your maintenance costs will rise, but you will have had the advantage of a few years of very low (or virtually non-existent) maintenance costs.

Buying Off Plan.

You cannot see what you are buying and you never know what the finishings will look like until they are physically in place. Do try and get contractual commitments about the detail of any off-plan investment, especially if you are paying more for up-scale finishings, furnishings and decorations.

Delays in Delivery:

If the property is not completed (or purchased off-plan) you may not have a home to move into for up to 18 months or even two years. This compares unfavorably with a pre-built property (whether a development or otherwise). Prices May Be Less Flexible: Developers may feel disinclined to offer a lower rate on a unit, especially early in the sales cycle, as doing so would lower the estimate price for all other units in the same development. That's why developers usually offer 'upgrades' or higher-grade finishings or furnishings as part of a package deal instead.

Maintenance Costs:
Condo developments and gated communities usually have monthly maintenance fees to cover communal facilities and services. Golf courses, tennis courts, swimming pools, lakes, et al -- they all need paying for and it's up to the new owners to continually fund the maintenance for these. The advantage of this system is that you get access to facilities which would normally be out of reach to most people if they wanted to acquire the facilities privately. Remember, too, that the costs for additional services and amenities only represent value for money if you plan to actively use them on a regular basis or if they add additional rental value / desirability to a property. Higher Cost per Square Foot: Usually (but not always) the cost per square foot of a new build home is higher than that of a pre-owned home. Some of this additional cost may be off-set by the advantages, for example, better efficiency, higher safety, amenities, community services, etc. It's a trade-off and one that needs to be considered as part of your wider lifestyle and investment choices.

Moving in During Build.
Some developers release certain units while other units (whether its a condo or a house) are still being built. This means that you may have to experience building work going on around you for a number of months or even years. Most developers will attempt to keep the disturbances to a minimum but you should check with the developer about the stages of build and how these may affect your living circumstances in the early months or years.
 

Early Years Aesthetics:
In the early years, new developments can look a little raw, for example, the trees may be planted as saplings and take years to mature; the grounds may look barren or bare. Flora and fauna take time to grow and mature and you need to accept this as part of your investment. Also, in newly developed areas, other building work may be taking place nearby; shops and services may not be fully developed from day one; and roads and pathways may take time to properly complete. Some developments are fully landscaped and look 'mature' very quickly indeed, but it does vary. You may need to take a longer term view with regards to the aesthetics of your local environment in the early years.

Love Your Neighbor.

When you buy into a condominium development, you will be sharing a significant amount of space with other people. Your neighbors may or may not share the same interests and aspirations; they may be friendly, they may be reclusive. It's impossible to predict. If you buy into a condo or similar development where the units are in close proximity to each other, be sure you know yourself and how you feel in close-knit environments. Some property developments are built in an 'open plan' design, that is, the units have plenty of open space between them. If you know that you are the type of person that needs open space between you and your neighbors, be sure you buy something that will suit your lifestyle needs in that respect

 

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