What is the break-even point in real estate projects
Many Colombians don't know what the break-even point is or how it helps every real estate project succeed. That's why we'll tell you what it is and why it plays a very important role when buying an off-plan property.
Table of contents
What is the break-even point?
What conditions must be met to reach the break-even point?
What is the break-even point?
The break-even point is a crucial stage of the project in which a series of conditions must be met; once they are, it is confirmed that the minimum sales and fundraising goal has been reached to ensure construction can begin. Projects with multiple towers or phases may be divided into stages, so each of them may have its own break-even point.
This goal is set based on each project's feasibility studies and is reached under the supervision of a third party in charge of collecting the funds, the trust company, which safeguards the money paid by future owners until the break-even point is reached.
However, each project has its own set of conditions, as we'll explain below.
What conditions must be met to reach the break-even point?
Generally, a commercial condition must be met: reaching a sales percentage that makes building the project viable. It is usually between 60% and 80% of sales of the stage being marketed. However, sales are not the only determining factor; there are also:
Technical condition: obtaining the permits required to build the project, issued by the corresponding government authorities.
Legal condition: the transfer of the lot on which the real estate project will be developed to the developer trust, together with a favorable title study certified by a lawyer specialized in the field.
Financial condition: confirmation of a construction loan approved by a financial institution, as a guarantee to back the project's potential needs.
Each of these conditions depends on the particular characteristics of each project. That is, they may vary or new conditions may be added.
Note that the conditions are not mutually exclusive; all of them must be fully met.
Important points to keep in mind
During the preliminary phase funds are collected, and the break-even point makes it possible to direct those funds to construction.
The break-even point is a series of safety measures that help turn each stage of the project into reality.
When you buy a property in an off-plan project, the contractual obligation to you is always tied to the stage you buy and not to future stages of the project, since those have yet to reach their break-even point and therefore may not go ahead if the conditions are not met.
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