International buyers often find the holiday home of their dreams in the form of highly affordable pre-construction options, often located on luxury, purpose-built resorts. Below we take a no-nonsense look at this type of purchase and its pros and cons.

For those unfamiliar with buying pre-construction property, the prospect of parting with hard-earned money for a muddy hole in the ground, well before the first brick has even been laid can seem a tad daunting. But there is an art to buying on the strength of architects’ drawings and this has become a favored option amongst many shrewd international property buyers.

What is a Pre-Construction (Off-Plan) Purchase?

As is often the case, time means money: On the one hand, developers need to sell their product fast so they price their real estate units temptingly low, thus achieving fast and valuable finance to proceed with constructing their development. They then repeat the whole process as soon as possible. On the other hand, buyers act fast to secure the lowest possible price and the best real estate units on a particular development.

Homebuyers are delighted with having obtained the lowest possible price for their properties, while investors will often sell on their contract at a profit prior to completion, repeating the whole process again as soon as possible.

The pros and cons:

Pre-Release Discounts

Pre-release prices have obvious benefits for the developer, who gets instant finance to begin the project. Meanwhile the buyer, who gains instant capital, often around 20%-30% of the sale price, prior to official launch when normal pricing levels then kicks in.

Capital Growth From the Start

If you decide to hold onto your real estate unit and complete on the purchase, buying at last year’s prices, particularly in an emerging market, can produce excellent returns on investment. Profits can be quite substantial, reaching around 5-10% per annum in key locations.

A Simple, Cost-Effective Investment

Pre-construction purchase allows you to reap in capital growth, without the need to apply for a mortgage or even complete on a purchase. Theoretically, you could literally walk away from the deal after having made a minimal capital outlay and never actually “owned” or lived in the property. You could then recoup your money, making a tidy profit and avoiding any stamp duty, mortgage set-up and many others related closing fees.

Bulk Buy Discounts

Many developers offer discounts on the market value in the region of 10-20%. This is usually easy to negotiate when bulk buying more than one real estate unit at a time. Discounts allow extra equity to be locked into the purchase and give potential for higher profits at the time of reassigning the contracts prior to project completion.

The Early Bird Catches the Worm

Buyers who get in early at phase one of a development are usually the ones to benefit the most from the rich pickings. They get the chance to buy on the best real estate units with the most desirable views, while paying the lowest prices for the best real estate units. If the first phase sells well and the development becomes popular, prices are normally raised for subsequent phases; therefore, if you buy at the start, you will usually get first pick of the best investments on offer.

Payments

Developers require stage payments from their buyers throughout the building process. Each development and country has different terms but typically these are around 5% per real estate unit as a deposit down payment or reservation fee, followed by 15% of the purchase price after 30 days with the balance payable upon stages of completion.

In this way, you can budget to afford stage payments without the need for a large one-off payment, effectively securing a high value asset for a relatively low initial capital outlay.

Keeping in the Market.

Some homebuyers purchase pre-construction at today’s prices, knowing that if they can just about afford to buy now, they will not be priced out of the market once prices have risen at project completion in three or four years.

Guaranteed Rental Programs

Many pre-construction projects offer guaranteed rental income to their buyers for a fixed number of years. This guarantees you some valuable extra income to help pay off a mortgage, while you can simply sit back and watch capital growth take hold. Guaranteed rental agreements incite confidence that your holiday home can be funded adequately from other peoples’ pockets, with minimum outlay from your own.

Tailor-Made Units

Developers are geared up to give buyers a choice of fixtures, fittings, furniture packs and interiors, while on some projects; you can even have some input into how the property is designed.

Hotspot Locations

Invariably, large developers are professional enough to construct in current or up-and-coming hotspots ensuring optimum potential for high returns on your investment. They should have already researched proximity to infrastructures including modern amenities such as schools, medical services, recreational facilities, public transport and places of interest or natural beauty.

Specifications and Dimensions

You will be buying from architects’ plans, drawings and elevations and, with a bit of thought and practice, this is a reasonably achievable task.

Finance

Some developers will offer pre-arranged mortgages as part of the pre-construction deal. You are never obliged to take this mortgage, although you may save some arrangement costs and hassle in so doing.

When you’re interested, we can give you even more excellent reasons to explore a new life in Nicaragua, whether you’re interested in vacationing, retiring, starting a new business or investing in the lucrative opportunities that abound.

We are very excited about the future of our growing resort and would love to help you learn more about LAYA and Nicaragua’s Pacific Coast.

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