Will You Make Money Buying Pre-Construction Condos?

Pre-construction condos in SarasotaHave you ever thought about buying a pre-construction condo for investment purposes? This is a game many people want to play and it is usually only played by the wealthy because of the high prices that new downtown Sarasota condos typically sell for.

There can be a mad rush to buy when a new condo building is released. Early buyers will typically buy at lower price levels because the developer will eventually raise prices as more and more condos are sold. Do these investors make any money doing this?

Below you will find a variety of condo buildings in downtown Sarasota. I pulled sales data from when the units were purchased and then sold. It typically takes 24 months to build a condo. The purchase date is when they closed on the property. In most cases the units were sold well before the closing date. For example, unit 1101 in the Ritz Carlton was closed in November 2001 for $1,260,000 but the price was established up to 2 years prior to that when they released the units (pre-construction).

Gain and loss figures do not include Realtor fees as well as the ongoing carrying costs of a condo - association fees, contents insurance, maintenance and property taxes. The figures are purely just sales price. 

Ritz Carlton Residences

  Purchased Purchase Price Sold Sold Price Hold Time Gain/Loss
1111 Ritz Carlton Dr #1101  11/2001  $1,260,000  5/2015  $1,350,000 13.5 years +$90,000
35 Watergate Dr #1504   12/2003  $1,424,700  7/2004  $1,840,000 7 months +$415,300 
35 Watergate Dr #801   7/2004  $2,000,000  1/2006  $2,175,000 18 months +$175,000 
35 Watergate Dr #905  6/2003  $2,100,000  6/2005  $1,680,000 2 years -$420,000 
1111 Ritz Carlton Dr #1105  11/2001  $990,000  12/2004  $1,264,000 3 years +$274,000 

It is interesting see that a unit sold in 2001 sold for only $90,000 more 13.5 years later. For the most part it seems like the original purchasers in the Ritz Carlton condo towers made money.

La Bellasara

  Purchased Purchase Price Sold Sold Price Hold Time Gain/Loss
464 Golden Gate Pt #401  5/2006  $1,750,000  7/2007  $2,250,000 14 months +$500,000 
464 Golden Gate Pt #604   5/2006  $2,200,000  10/2008  $2,250,000 2.5 years  +$50,000
464 Golden Gate Pt #601   5/2006  $1,875,000  11/2010  $2,275,000 4.5 years +$400,000 
464 Golden Gate Pt #504  4/2006  $2,200,000  5/2013  $2,100,000 7 years -$100,000 

There was some good money made in the La Bellasara condo building on Golden Gate Point. Interesting to see that the owner who held it the longest at 7 years ended up losing money whereas the others sold their units for more. 

Beau Ciel

  Purchased Purchase Price Sold Sold Price Hold Time Gain/Loss
990 Blvd Of The Arts #803  10/2003 $870,500  8/2004 $975,000 10 months  +$104,500 
990 Blvd Of The Arts #403   10/2003 $712,500  1/2005 $925,000 15 months  +$212,500 
990 Blvd Of The Arts #702   10/2003 $782,000  2/2005 $1,000,000 16 months  +$218,000 

The three Beau Ciel buyers above did well on their condos with a short hold time. If they closed in 2003 that means they probably established their sales price in 2001 and then sold the units near the top of the market in 2005. Timing can be everything. 

Alinari

  Purchased Purchase Price Sold Sold Price Hold Time Gain/Loss
800 N Tamiami Trl #912  2/2007 $445,500  7/2007 $395,000  5 months -$50,500
800 N Tamiami Trl #1011  1/2007 $709,000  10/2015 $515,000 8.5 years -$194,000
800 N Tamiami Trl #415  1/2007 $599,000  8/2014 $410,000 7.5 years  -$189,000
800 N Tamiami Trl #1103 1/2007 $530,000 4/2009 $410,000 2.25 years  -$120,000
800 N Tamiami Trl #508 1/2007 $509,000 12/2008 $399,000 2 years  -$110,000

Alinari buyers didn't do as well.  In the above five sales they closed in 2007 when the building was finished. They established their sales price somewhere in 2005 which was the top of the Sarasota Florida real estate market in terms of prices. So, they paid at the top and then sold in a tougher real estate market. Ultimately, all five of the above buyers lost money.

Rivo on Ringling

  Purchased Purchase Price Sold Sold Price Hold Time Gain/Loss
1771 Ringling Blvd #801  11/2006 $488,400  3/2007 $565,000 5 months  +$76,600
1771 Ringling Blvd #608  11/2006 $400,200  5/2007 $405,000 6 months  +$4,800 
1771 Ringling Blvd #PH205   11/2006 $1,000,700  6/2007 $900,000 7 months  -$100,700 

The Rivo on Ringling owners were mixed. One of them made money but the other two lost money when you factor in carrying costs and Realtor fees. 

Kanaya

  Purchased Purchase Price Sold Sold Price Hold Time Gain/Loss
505 S Orange Ave #402  2/2007 $600,000 11/2012 $655,000  5.75 years +$55,000 
505 S Orange Ave #503   4/2007 $795,000  2/2013 $720,000 6 years   -$75,000
505 S Orange Ave #403   3/2007 $716,500  9/2010 $322,000  3.5 years -$394,500 

Kanaya buyers were in the same boat. When you factor in carrying costs and Realtor fees it looks like two of them lost money and the other was close to break even. If they purchased in 2007 the prices were most likely established in 2005 when property prices were inflated. 

Observations and Take Aways

  • You can make money buying condos before they are built.
  • You can lose money buying condos before they are built. 
  • What seems to be the most important factor in whether you make or lose money is the timing. Are you buying in a good or bad market? Are you selling in a good or bad market? 

 

  • The people who lost money bought near the Point of Maximum Financial Risk (2005/2006) and sold later when prices were falling. 
  • The people who made money most likely bought in the Optimism/Excitement phase in the wave displayed above and sold in the Euphoria zone.
  • If your Realtor tells you that you will always make money buying a pre-construction condo they are wrong.
  • The best reason to buy pre-construction is because you like the community, want to live there and making money is secondary.

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