Understanding Development Funding & Buying Pre-Construction

The hotel zones in Mexico are thriving, making it an ideal time to consider purchasing a pre-construction property.  Construction of new developments are at levels unseen in places like Playa Del Carmen, Cancun and the greater Quintana Roo area.

One benefit of purchasing pre-construction is the potential for developers to offer incentives such as discounts or payment plans for buying early. Typically, buyers make a down payment and then make monthly payments throughout construction, with the final payment due at closing. This is a win-win for both the buyer and the builder, as the buyer secures a condominium at a predetermined (usually lower) price, and the builder benefits from cash flow and secured sales.

Since builders have to pay for materials, labor, and other construction costs before the building is complete, they need a funding source. Some builders have their own pool of money, or investors who provide them cash to pay those expenses. Other builders use the deposits and monthly payments from pre-selling the units to get some or all of their cash. When a development is funded entirely or mostly by unit sales, there can be more risk, especially if pre-sales are slow. However it’s not the only factor you should consider.

Our local real estate professionals can guide you through the process and help you avoid potential issues with a developer. Contact us below for more details.

Other factors to consider if doing your own due diligence on a pre-purchase in Mexico:

Confirm that the builder or seller is the legal owner of the property or has a legal contract of sale or transfer from the owner of the property.

Confirm that the builder has current/paid-up construction permits in place for the project.

If the project is adjacent to edijo land, ensure that the seller has appropriate legal paperwork in place which permits the project to proceed with building.

Ask for references from satisfied customers

Other questions for you and your Mexico agent to consider for an informed decision on a developer:

  • Are there any other Title issues?
  • What percentage of funding is secured?
  • Who owns the various stakes in this development?
  • What incentives they offer early buyers?
  • What happens to my deposit money if something goes wrong?

By following these steps, and working with a local real estate agent, you can feel secure in your decision and minimize many of the potential risks of purchasing pre-constructed homes.

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