Buying pre-construction real estate can seem like a great deal, especially in a booming market like Mexico and other expat-friendly countries. You can secure a property at a lower price, choose your preferred unit, and enjoy the benefits of a brand-new home. However, there are also many pitfalls and dangers that you need to be aware of before signing a contract with a developer.

In this article, we will explain what pre-construction real estate is, why it is risky, and how you can protect yourself from scams, delays, and losses. We will also share some tips and advice from experienced buyers who have gone through the process and learned from their mistakes.

What is Pre-Construction Real Estate?

Pre-construction real estate is when you buy a property that is part of a development project, but the construction work has not started or is still in progress. The developer sells the units before breaking ground or finished construction to raise funds for the construction and to generate interest in the project.

Pre-construction real estate can be attractive for buyers who want to customize their home, get a discount, or invest in a potential growth area. However, it also comes with many uncertainties and risks that you need to consider carefully.

Why is Pre-Construction Real Estate Risky?

Buying pre-construction real estate can be risky for several reasons:

  • The developer may not have the legal authority to sell the property. In Mexico and most all countries, the law requires that the developer has a clear title to the land and the permits to build the project before offering it for sale. However, some developers may not respect the law and may enter into agreements with landowners that are not valid or may change over time. This can lead to disputes, lawsuits, and cancellations that can affect the buyers who have already paid a deposit or the full price.
  • The developer may not have the financial capacity to complete the project. Some developers rely on the pre-construction money to finance the construction, but they may not have enough cash flow or credit to cover the costs. If the sales are slow, the market conditions change, or the expenses increase, the developer may run out of money and abandon the project, leaving the buyers with nothing.
  • The developer may not deliver the property as promised. The developer may change the design, the specifications, the amenities, or the quality of the project without notifying or consulting the buyers. The developer may also delay the completion date or fail to meet the contractual obligations. The buyers may end up with a property that is different from what they expected or paid for, or they may not receive it at all.
  • The developer may try to cancel the contract and sell the property to someone else. Some developers may take advantage of the rising market prices and try to break the contract with the buyers who have paid a lower price. They may offer to refund the money, but this may not be enough to compensate for the lost opportunity, the inflation, or the legal fees. The buyers may also have trouble finding another property that suits their needs and budget.

How to Protect Yourself from Pre-Construction Real Estate Scams?

If you are interested in buying pre-construction real estate, you need to do your homework and take some precautions to avoid being scammed or losing your money. Here are some tips and advice from experts and buyers who have gone through the process:

  • Do your research on the developer and the project. Check the reputation, the track record, and the financial stability of the developer. Look for reviews, testimonials, and complaints from previous or current buyers. Visit the site and see the progress of the construction. Ask for the legal documents that prove the ownership of the land and the permits to build the project. Verify the information with a lawyer or a notary public.
  • Negotiate a fair and balanced contract. Do not sign a contract that is too favorable to the developer or that gives them too much power or discretion. Make sure the contract includes the following elements: the description of the property, the price, the payment schedule, the delivery date, the penalties for delays or cancellations, the warranty, and the dispute resolution mechanism. Do not accept verbal promises or guarantees; get everything in writing and signed by both parties.
  • Hire a professional to represent you and protect your interests. Do not rely on the developer’s salesperson or closing agent, as they may have a conflict of interest or may not disclose some important issues. Hire a lawyer, realtor, or escrow agent who can review the contract, monitor the progress, handle the paperwork, and advise you on the best course of action. They can also help you enforce your rights and claim your damages if something goes wrong.
  • Be prepared for the worst-case scenario. Buying pre-sale real estate is a gamble, and you need to be ready for the possibility that you may lose your money or your property. Have a contingency plan in case the project is delayed, canceled, or delivered differently than expected. Save some extra money for emergencies, legal fees, or alternative housing. Do not invest more than you can afford to lose, and do not put all your eggs in one basket.

Recommendation

I wouldn’t recommend buying a pre-construction condoanywhere in the world without knowing all of the above and being very familiar with the area.

That’s the biggest problem I’ve seen with fellow expats unhappy with their pre-construction. They didn’t know the area. Some have never visited the area. One condo building I’ve seen near my home here in Yucatán, México is built all by itself in front of a crocodile lagoon, which makes enjoying the waterfront a bit scary. The lagoon is well-known by locals for not being safe for humans. Over the years, some tourists ignored the signs and were eaten. Then a developer sold pre-construction and built a decent-looking condo building but just in a bad location.

I drive by several pre-construction sites when I go into the big city of Mérida, Yucatán, México for my doctor’s appointments and big-city shopping, and many pre-construction plots haven’t had any development in years.

Developers will put up a nice-looking gate and wall along the road. Many are nowhere near anything, just a plot of land in the middle of the jungle. They don’t even have any access to services like electricity or water because they are so remote.

They can look great on a website but may never be developed and could be perpetually selling forever.

I’ve also caught a realtor here in México have homes and condos for sale and rent on their site that they don’t have anything to do with just to give their real estate listings a big boost. When you are interested in one, they say it’s currently unavailable and point you to another one that they actually have.

Only use professionals that have been referred to you by very satisfied clients. Facebook’s groups are not helpful because the bad people have multiple accounts in local expat groups and will spread lies to confuse you whether someone is good or not. Many people I have worked with for years dislike social media because of this and just avoid it. Referral only.

I just ask for referrals and vet them out. I have had people referred to me that didn’t work out. Once a painter

was referred to me by a rich Mexican I trusted and had done a successful transaction with, but the painter was just awful. I had to ask for corrections, and he and his team couldn’t do it. Literally had to let him go and use someone else. I was surprised. So, get multiple referrals and vet them out from everyone you know in the area.

Don’t know anyone in the area yet? Don’t buy anything yet. Just rent until you understand the area.

I explain in my guide to becoming an expat needs to be in phases at My How To Become An Expat In 30 Days coursethat comes with Expat Rebel Plus Membership. Buying a place is one of the last things to do. You need to understand a great many things before you do that, and it requires knowing the area quite well at a level that requires you to be living locally for a while first.

Buying pre-construction real estate can be a rewarding experience, but it can also be a nightmare if you are not careful. By following these tips and advice, you can reduce the risks and increase the chances of getting the property of your dreams.

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