Maybe you’re ready to buy a newly constructed condo, whether for the tax deduction, because you’re attracted to the fancy finishes that come with new construction, or because you like the idea of buying a place where no one but you has ever lived before. (Maybe you’re the sort of person who isn’t fooled by someone else’s surface cleaning – you’d like to be responsible for cleaning no one’s dirt but your own)
If you want to buy a brand-new place, go for it – but make sure you watch out for these 3 common snags on newly constructed digs:
1. The Square Footage Is Overstated.
Condo owners buy a “percentage of common interest” in a building, which includes the square footage of the individual unit, but also a little slice of the hallways, lobby, and elevator space. As a result, a “900-square-foot” condo probably isn’t going to be 900 square feet inside. The best way to make sure you’re buying enough space is, when you visit the apartment, to think about how big your furniture is and where you would put it.
2. The Common Charges Are Understated.
When a new building opens, the developer does the only thing he can do: He estimates expenses. Sometimes that works pretty well; if there’s a union contract, it’s pretty easy to guess what a doorman will cost. But sometimes things don’t work out. For example, it’s pretty hard to guess what it will cost to operate a heated pool if you don’t know the weather, the price of electricity, or how much the pool is going to be used. As a result, be very wary of a new building’s financial statements. They may understate the actual costs of running the building. And those costs are sure to show up, sooner or later, in your monthly maintenance statements.
3. Buildings Can Be Unfinished Or “Stuck.”
When the Great Recession happened (and even a little before), getting loans to build and develop real estate became really difficult. As a result, many developers couldn’t finish the building projects they’d started. Some found that end-users didn’t want to buy finished buildings (or couldn’t get mortgage loans) in the Great Recession. I think of these as “stuck” buildings.
Just look at the history of the Rushmore, a condo on Manhattan’s West Side. In 2006, the two-tower building (it’s shaped kind of like a tuning fork) was selling condos on the strength of its water views, designer children’s playroom, and extra-special concierge services (a firm was hired to take care of, say, getting you Broadway tickets). Then, after the real estate crash, dozens of potential buyers sued the developer to get out of their contracts. If it’s any reassurance, however, many new condo developments that get stuck get started again.
The markets always alternates between periods of up and down. Apparently convinced that we’re ready for an “up,” baseball powerhouse Alex Rodriguez bought a multimillion-dollar apartment in the sky. The Wall Street Journal’s Josh Barbanel reports that A-Rod is spending between $5 million and $6 million to get a four-bedroom with water views.
If A-Rod is willing to plunk down money for a new luxury apartment, then, well, maybe the market is improving—perhaps there’s hope for those of us looking for apartments here on earth, after all.