Build or Buy a Vacation Rental

March 27th, 2010 → 1:52 pm @ mmatchev

Another area that you need to explore before making your final decision about a purchase is the question: do you build (buy pre-construction) or buy a home that is already built? There is a whole set of factors to consider. First, you need to realize that in most cases buying pre-construction can be more expensive up front. You usually have to come up with a larger down payment. You also have to buy all of the furnishings. This is in sharp contrast to purchasing a vacation home that has already been built, as these homes typically are sold fully furnished. Not only does buying the furnishings mean paying additional money, it also means additional work. Be prepared to spend a good deal of time cruising furniture stores, looking for sales, making sure what you want is in stock, setting up delivery dates, and handling a number of other hassles. On the other hand, you won’t have to worry about buying a home that you love that comes with a set of furniture that you hate!

In all likelihood, you will see better appreciation in your first three years of ownership with a pre-construction. This is because of the delay between the day you purchase a pre-construction and the day it is actually built. Typically, that can be three years for a condo and one year for a house. The builder needs to sell at a reduced price so he or she can get the project off the ground, so he or she sells pre-constructions at a reduced rate, which later works to your benefit in the form of accelerated appreciation in the years immediately following your purchase.

After the lender-required units are reserved, the developer delivers the final condominium documents to the buyers. These documents describe the condominium project in great detail. This is called the contract stage. Buyers then have 15 days to look over the documents and decide whether to “go hard on the contract” or to back out and have their reservation deposits refunded. Going hard on the contract normally requires buyers to make an additional deposit, which combined with the reservation fee, will be 20% of the purchase price. At hard contract stage, the deposit becomes non-refundable. Some fallout may occur as the result of a few buyers opting out. Buyers do not close and start making payments until the project is completed with a certificate of occupancy.”

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