 Condo
values often jump ... after the dust clears
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 Dear
Steve,
What are some of the potential problems of buying
a new condo in the first phase of a four-phase construction project?
-- Mark Salott
 Dear
Mark,
You don't say where the condo is, but if it's in a vacation or retirement
area, particularly near a beach or golf course, that would change
the dynamic, especially with the entire baby boom generation set
to retire in the next few decades.
Obviously, such a locale would bode well for a jump
in investment potential. It's not uncommon for the prices in such
a condo development to rise vigorously before the first unit can
even be occupied. And that would be good for you, of course.
But an awful lot of condos these days are being "pre-sold"
for small down payments to speculators who are anticipating such
a jump. That means that some projects may never be fully built out
because the developers might not be able to obtain construction
loans if too many speculative buyers are planning to resell for
a quick profit.
Lenders are taking closer looks at this phenomenon
because of the potential for developments going bust, should too
many speculators not close on their units.
We've seen this in the past in some markets. In fact,
some lenders are now mandating that developers put "nonassignment"
clauses in sales contracts forbidding their buyers from flipping
units before they close, to avoid the potential for artificial inflation
and financial collapse.
But let's assume that you are in a more stable market,
and that your condo building is completed or under construction,
and that you have researched the builder and developer and found
they have successfully constructed similar projects with few or
no complaints.
Then, buying into that first building can be a good
move because when such amenities as pools, landscaping, ponds, etc.,
are finally completed for the full four phases -- and the place
is finally devoid of construction dust -- your unit could appreciate
in value when potential buyers see the completed package. The downside
is that you will be putting up with construction noise for quite
some time, especially if you're at home during the day.
Also, in a new-condo development, the initial maintenance
assessment you're paying may not be realistic in its ability to
handle future repair and infrastructural issues as they arise. The
fee may rise as the complex fills.
Make sure you ask plenty of questions of the development
or management company on these and other issues, if you haven't
already. It's also important to note that if the housing market
goes soft, interest in condos traditionally drops a little faster
than standard single-family homes.
For the most part, though, condos are appreciating
in value quite well in most areas, particularly in mature markets
with land constraints. So chances are you're making a good investment.
Good luck.
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