Saturday, November 07, 2009
Dear Reader,
In the past weeks in her "Twelve Things you Need to Know to Do...and Then Do" series, Margaret strongly recommended that you:
1. Engage your own independent legal advice,
2. Buy the right title insurance,
3. Scrutinize your sale contract,
4. Investigate your title deed carefully,
5. Check permits and approvals,
6. Make sure you have access
7. Get a handle on the infrastructure essentials.
This week, it's all about developers. Buying preconstruction property can be very profitable, but it also carries risk. One of the risks involved is the developer. Does he know his stuff...how is he funded...what happens if his builder doesn't finish construction?
You should assess your developer thoroughly. Don't be afraid to ask questions, even if they seem intrusive. A little digging before you sign on the dotted line could save you a lot of headaches down the road.
"Tip #8: Check the Developer's Background If dealing with a pre-construction development, ask if your developer has developed before. If he has developed overseas before, he is more likely to be realistic about costs and timeframes.
If he has developed before, what was the finished development like? Can he provide you with written testimonials from buyers and owners?
How is the developer financing the project? If he has loans or mortgages, how is he proposing to pay them off? If he is committed to repaying those before he starts construction, that is not the ideal situation for you.
Does he need money from sales to finance the project? How likely is he to achieve that sales level in the current market? Bank financing usually kicks in when a developer has sold 20-80% of available units. The bank decides the percentage, based on a number of factors, including the developer's track record, and the market he is operating in. Banks are becoming more cautious in the current economic downturn, and tightening lending restrictions. Obviously, it is preferable for you if the developer will start construction when he is 20% sold.
Most developers do not build themselves. They hire a construction company. What is their background and record? Can you see some of their finished projects to see if you are happy with quality of their work?
See if the developer has insurance that covers him in the event that his constructor goes bust, can't complete the work or fails to complete it satisfactorily. Insurance still means a delay waiting for the funds to finish construction, but it's better than the alternative (a half-finished project)."
Don't think that your due diligence process is just boring paperwork. I always recommend that you visit before you buy. This is a central part of your due diligence. It's also fun. This is where Pathfinder Chill Weekends come in.
A Chill Weekend is nothing more than an opportunity to enjoy a short vacation in exchange for allowing a developer the opportunity to showcase a property or development he is promoting. No strings, no high-pressure sales tactics, no hard sell, just a chance to investigate some real estate opportunities (and check out the beach, of course!).
Best of all: the developers pick up some of the tab.
This December, our friends in the Riviera Maya, Mexico, will host a Chill Weekend.
December 3rd-5th, 2009: The Riviera Maya is a series of crescent-shaped white sand beaches, lapped gently by the turquoise Caribbean. The jungle interior reveals Mayan ruins and exotic wildlife, and the world's second-longest coral reef--which has attracted divers, snorkelers, and eco-tourists for years--hugs the coastline.
This area has become increasingly popular with property buyers looking to escape Cancun's crowds.
Sian Ka'an is located on a signature 27-hole golf course a few minutes' shuttle ride from a white-sand beach. You won't lack any amenities--the property boasts three hotels (one of which you'll stay in), and a choice of restaurants and entertainment. Plus, you're only 35 minutes from Playa del Carmen, with its cosmpolitan Fifth Avenue, and upscale shopping and dining. The chill weekend runs over three nights and four days, and includes accommodation, food, cocktail receptions, dinner at Playa del Carmen's finest restaurant, and the chance to learn more about this investment opportunity. The trip costs $200 pp.
Ronan McMahon
You might also be interested in:
Make Sure This is in Your Contract
Do You Know Exactly What You’re Buying?
Posted Under:
chill weekends, emerging market, due diligence
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