What you should know about buying a pre-construction investment property in Cabo
Buying a pre-construction property can reward you with huge equity gain, a more customized property, exclusive financing options, and some guarantees on workmanship. As Cabo’s popularity has grown, developers have pushed to fill the need for additional residences. In the past few years, we have seen many new condominium projects throughout Los Cabos with over half of the current condominium offerings being pre-construction. These projects give buyers a wide variety of options when looking to find a property that fits their lifestyle and needs.
Equity gain on pre-construction property
Equity gain, in the context of pre-construction property, refers to the increase in the property's value from the time of purchase to its completion. Historically, pre-construction projects in Los Cabos have seen an equity increase of 10-20% from concept to delivery.
Developers often put considerable effort into concepts and renderings to help potential buyers see the value of their projects. Purchasing a condo in this early stage allows you to capitalize on the lowest prices. As more condos are sold in the development, developers slowly raise the prices of the remaining units. By the time the condos are delivered, the values have been increasing and the market supports the higher sales prices for the properties because the project is complete, the amenities are built, and new buyers can now see the value. You can decide whether you want to sell the property and capitalize on the equity gain or keep the property and generate rental income.
As with most investments, the rewards do not come without risks. Developers have varying levels of experience, financial backing, and track records. During construction they can run out of money, fall far behind schedule, or run into permitting issues. However, these risks can be effectively mitigated by working with a good agent who is familiar with various developers, successful processes, and does the due diligence to help you make the best decision. With the right agent by your side, you can navigate these potential pitfalls with confidence.
Another factor to keep in mind is the project’s projected completion date and how that corresponds with your anticipated move-in date. If you buy a pre-construction property in the early stages of development, it may be two years before you are able to move in and use the property. Your property may also be completed before the entire project, potentially meaning some construction noise while you’re at the pool. The sales agreement will outline the expected completion date as well as any penalties the developer will incur should they not hit this target date.
Pre-construction customizations, upgrades, and guarantees
When you buy, you may have the option to choose certain features and finishes for your property. Developers sometimes have a catalog of options for kitchen counters, backsplashes, paint colors, and tiling. The options will depend on the developer, the project, and at what stage of construction you buy in. Upgrades and furniture packages are also fairly common and can be negotiated with the developer. It is important to make sure any agreed-upon customizations and upgrades are included in writing in the sales agreement.
It is common practice for pre-construction sales agreements to include a guarantee on hydraulic, sanitary, and electrical work. This guarantee is usually for one year from the date of delivery.
Financing a pre-construction purchase
While Los Cabos has historically been a cash market, through the years, financing options have become more available and more common. In addition to global mortgage companies and local banks, developers sometimes offer lending options to enhance the attractiveness of their offerings. These options differ by developer but usually involve a direct short-term loan or allow for predetermined installment payments relating to construction progress. A benefit to these payment plans is you aren’t paying all of the funds upfront; rather, you are paying for the property as it is built. It's important to understand these financing options and to choose the one that best suits your financial situation.
Capitalize on Cabo’s booming pre-construction market
I believe pre-construction projects in Los Cabos offer an excellent opportunity to get into the real estate market at today’s best prices. The equity gain, customization, upgrades, guarantees, and financing options combine to create some of Cabo’s best deals. However, it is critical to work with an agent who understands the risks associated with these purchases and can help navigate them effectively.