Are pre-construction condos a wise investment? Well, the short answer is a resounding yes. But that won’t be enough to satisfy your curiosity, especially if you’re considering diving into the world of pre-construction condo investments. Trust me; I’ve been asked this question countless times. And now, with Toronto’s real estate market throwing even the most seasoned realtors for a loop, it’s a topic on everyone’s mind.
So, let’s dive deep and explore this question together. By understanding how to navigate the pre-construction market and, more importantly, how to identify the suitable pre-construction condo investment, you’ll discover why this real estate strategy can be a life-changer.
This blog is meant for beginners and experienced real estate investors looking for opportunities in the pre-construction condominium market. So, whether you’re seeking favourable cash flow properties or equity investment prospects, let’s dig in and explore the exciting world of pre-construction condos in Ontario Toronto!
|Are pre-construction condos a good investment in 2023?
In 2023, pre-construction condos represent a good investment due to potential capital appreciation, new amenities, and the chance for customization.
Table of Contents:
Understanding the Pre-Construction Condo Market
Before we delve into the details, let’s clarify some critical definitions to help you navigate the pre-construction condo market.
|Did you know?
Investing in pre-construction condos in 2023 can be an excellent financial opportunity due to the potential for increased value, customization options, and the ability to secure a property at a lower price compared to the market value upon completion.
What Is a Condominium?
A condominium is a type of housing or structure divided into multiple living units. Each condo unit within the building is sold separately to individual investors or owners. Here’s an interesting tidbit: every owner in the condominium complex owns a piece of the land on which the condo was built. Cool, right?
The Investopedia article defines condominiums as real estate ownership where individuals own their units within a larger building or community. Condos offer a blend of personal licenses and shared responsibilities for common areas. The article highlights key features such as the benefits of condo living, the role of homeowners associations, and the potential for investment opportunities in the condo market.
Why is Toronto’s condo market a hotbed for profit in 2023? Well, there are numerous reasons. Whether you’re looking for a property with positive cash flow or an equity investment opportunity, the Toronto condo market is worth a second look.
What Is a Pre-Construction Condominium?
A pre-construction condo is precisely what it sounds like—a new construction project that has yet to be built. To finance the building process, developers usually sell all or most of the units before construction begins. Typically, sales for pre-construction condos kick off around four years before the estimated completion date.
Now that we have our definitions let’s tackle the big question.
Are Pre-Construction Condos a Good Investment?
To put it simply, yes, they are. Investors are increasingly drawn to Canadian real estate, specifically the Toronto pre-construction market, because historically, it has performed exceptionally well. On average, Toronto pre-construction condos have gained 6% equity per year, making them an attractive option for long-term, stable, and passive investment vehicles.
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Realtors in the Greater Toronto Area (GTA) assure pre-construction buyers that it is not the time to panic amidst concerns about closing deals. Despite rising costs and construction delays, experts believe the market will stabilize in the long run. Builders are working to address supply chain disruptions and labor shortages. Pre-construction buyers should communicate with their developers to understand the timeline and potential delays. Realtors recommend patience and staying informed to navigate the current real estate market challenges.
Moreover, the Toronto real estate market is relatively insulated, boasting high rental and low vacancy rates. If you’re interested in a detailed comparison between pre-construction condos and resale properties, check out our blog that breaks it down.
5 Benefits of Investing in Pre-Construction Condos
Now that we’ve established that pre-construction condos are indeed a good investment, let’s explore some of the key benefits you can enjoy when investing in them.
1. Availability of Extended Deposit Programs
When evaluating whether pre-construction condos are a wise investment, it’s crucial to start by considering the financial aspects. One of the primary advantages of purchasing a pre-construction condo is the deposit structure. Unlike resale investment units that require the complete 20% upfront as a down payment, pre-construction condos offer a more flexible deposit structure.
The deposit for a pre-construction condo can range from 15% to 20% and is generally divided into installments spread over several years. This allows you to invest less money upfront, optimizing your financial return. Plus, the extended deposit program provides ample time to save up, which is especially beneficial for first-time buyers. Not having to pay the complete 20% down payment upfront means you can allocate those funds elsewhere or save on interest expenses if you’ve financed your purchase through a line of credit.
It’s worth noting that the average price of a pre-construction condo in Toronto is offset by the extended deposit structures that developers offer. In 2022, the average price per square foot of a pre-construction condo in Toronto was $1400psf, while the average selling price in the city was $758,066. These numbers highlight the affordability factor that makes pre-construction condos an attractive investment opportunity.
2. Taking Advantage of Today’s Prices
Investing in a pre-construction condo in Toronto is akin to investing in stock market futures. You can anticipate future price appreciation by purchasing now at today’s pricing. Historical data shows that long-term property values in Toronto have risen at an average rate of 6% per year. Working with a seasoned real estate agent and an investor can help you identify properties with strong potential for appreciation, such as gentrifying neighbourhoods or areas with upcoming infrastructure developments like Toronto’s new transit LRT lines. Since pre-construction condos take 3 to 5 years to materialize, buyers have a prime opportunity to buy in emerging neighbourhoods.
|Did you know?
Investing in pre-construction projects offers lower entry costs, the potential for appreciation, and customization options. Buyers can take advantage of extended payment timelines and developer incentives while also considering the risks involved, such as construction delays and market fluctuations. Consulting with real estate professionals is crucial for making informed decisions in pre-construction investments.
3. Enjoy a [Mostly] Hands-Off Experience
Investing in real estate often involves hands-on management and maintenance. However, pre-construction condos offer a relatively hands-off experience that appeals to many potential investors. During the 3 to 5-year construction phase, you can relax while the development takes shape. Your responsibilities are minimal, such as ensuring your payments are made on time and making a single round of selections for finishes and upgrades.
But wait, there’s more! If picking finishes isn’t your thing, our team can handle that. When you work with us, you hire a Toronto pre-construction agent with a full-service concierge team. And guess what? I’m also a top resale agent so I can handle your sales and rentals too. It’s a win-win!
4. Going Through a Well-Defined Process
Unlike the fast-paced world of resale condos, buying pre-construction offers a more structured and efficient process. When purchasing a resale condo, you often find yourself caught in intense bidding wars, where impulsive decisions are made in the heat of the moment. However, with pre-construction condos, you have a 10-day cooling-off period. This allows you to thoroughly review the purchase information with your attorney, realtor, lender, and financial advisor. You can also use this time to research the neighbourhood and the builder further. This process ensures a more informed evaluation of your investment.
5. New Condos Sell for More Money
In the resale condo market, shiny and new properties uniquely appeal to buyers and tenants. People are often willing to pay a premium for fresh, modern condos. So, when considering pre-construction condos as an investment, it’s essential to factor in the optimal “sell” or exit strategy. You can sell your condo while the building is still relatively new, or you can continue to hold onto it for potential future appreciation.
Wrapping Up the Benefits
In addition to the abovementioned advantages, pre-construction condos also offer unique tax benefits. For example, did you know that only 50% of all capital gains from pre-construction condo investments are taxable? This means you can deduct a significant portion of your expenses, including negative cash flow, property taxes, and mortgage interest, from your taxes. It’s a compelling reason why many investors view pre-construction condos as a wise investment choice.
Another perk is that you don’t need to worry about a mortgage commitment until the closing date, which occurs during the 3 to 5-year construction phase. This means you can own pre-construction real estate without affecting your credit report. Plus, you can own a condo without impacting your debt ratio or ability to borrow from lenders.
What Are Some of the Risks Associated With Pre-Construction Condo Investments?
The pre-construction phase attracts buyers for various reasons, including competitive pricing and the opportunity to choose preferred features. However, risks are involved, such as the potential failure of the development. While the risk is relatively small, some projects get cancelled, as seen with five projects totalling 400 units in 2016. These cancellations can devastate buyers who have invested substantial amounts of money. Despite the risks, people still purchase pre-construction properties, betting on the promise of future completion.
Speaking of which, pre-construction condos have become an enticing investment option for many individuals looking to dip their toes into the real estate market. The idea of purchasing a property before it’s even built can be both thrilling and nerve-wracking. But before you take the plunge, it’s essential to understand the potential risks and debunk some common myths associated with pre-construction condo investments. In this article, we’ll explore the pros and cons of investing in pre-construction condos, giving you the information you need to make an informed decision. So let’s dive right in!
Debunking Popular Pre-Construction Condo Investment Myths: 7 Myths
Misconceptions often cloud people’s judgment when buying a condo during the pre-construction phase. To help you separate fact from fiction, let’s debunk seven common myths that frequently raise concerns among prospective buyers.
Myth 1: They are all expensive and overpriced
It’s no secret that real estate prices, particularly in hot markets like Toronto, have skyrocketed in recent years. However, assuming that all pre-construction condos are unaffordable would be a mistake. While it’s true that property prices have increased, purchasing a condo can still be a reasonable and desirable alternative to buying a freehold property, especially in Toronto’s bustling downtown area. In fact, according to Stéfane Marion, chief economist at the National Bank, the single-family home market has become so expensive that many first-time buyers are turning to the condo market for a more affordable option.
Myth 2: It’ll be forever until your condo is ready
Waiting for your condo to be ready might feel like an eternity, but it’s not always the case. While delays can occur due to factors beyond the builder’s control, reputable condo developers strive to stick to construction schedules as closely as possible. Before you sign any agreements, it’s crucial to research the builder’s track record. Tarion’s builder directory provides valuable insights into a developer’s history and can help you assess their reliability.
Moreover, a longer build timeline can work if you’re a long-term investor rather than planning to flip your pre-construction unit. With most pre-construction condos requiring only a final 5% deposit at occupancy, a longer build time can mean a shorter rental period and lower down payment during construction.
Myth 3: You will need to make an initial deposit of at least 20%
The initial deposit is often a significant concern for buyers considering pre-construction condos. While a 20% deposit is typical for Canadian buyers (international buyers usually pay 35%), it’s important to note that payments are generally spaced out over some time. Reputable contractors understand the financial burden and offer flexible payment plans that allow you to manage your finances effectively. Sometimes, you only need to provide 15% upfront, with the remaining payments spread over months or even years.
While the risk is not eliminated, the Ontario government has implemented measures to protect homebuyers in case of a developer’s bankruptcy. The Tarion Warranty Corporation ensures that all new home buyers are safeguarded. If a project is terminated, the vendor is legally obligated to refund all monies paid by the purchaser, plus interest calculated following the Condominium Act. Additionally, Tarion serves as a backstop for deposit protection, providing coverage up to $20,000 for any deposit or portion that has yet to be returned.
Myth 5: You do not know what you will get
Buying a pre-construction condo doesn’t mean you have to settle for uncertainty. Reputable developers provide extensive information during the pre-construction phase, allowing you to make an informed decision. Take your time to explore the sales center’s presentation room, carefully review the floorplans, finishes, and amenity renderings, and don’t hesitate to ask questions. Additionally, visiting other completed projects by the same developer can give you a sense of their style and quality, helping you gauge whether it aligns with your expectations.
Myth 6: You will get a surprise bill at the time of closing
The cost of owning a condo goes beyond the initial deposit and mortgage payments. Maintenance fees, property taxes, utilities, and other expenses should all be considered when budgeting for a pre-construction condo. Additionally, closing costs play a significant role and should be noticed. These costs include land transfer taxes, meters, legal expenses, warranty, development levies, and administration fees. It’s essential to understand how a developer handles these costs. Are they already included in the purchase price, or will they be added later? Transparent builders aim to have all additional fees in the suite’s pricing, ensuring no unpleasant surprises at closing.
Myth 7: Property developers are not concerned about the buyers
While some developers prioritize profit over everything else, it’s a misconception to assume that all developers share the same mindset. Many reputable developers genuinely care about their buyers and strive to deliver high-quality projects that meet expectations. Before purchasing, it’s crucial to research the developer’s track record and reputation. Look for builders with years of experience and successful previous projects, as this increases the likelihood that the unit and building amenities will meet your expectations.
|Did you know?
While home prices are projected to rise by 5.4% (half the pace of 2022), overall home sales are anticipated to decrease by 14.1% as buyers and sellers exercise caution amidst a transitioning housing market and economy, aligning with the sales pace of late 2022.
Tips on How to Make Money on Pre-Construction Condos
If you’re considering investing in pre-construction condos, you’re in for an exciting journey. Whether you plan to live in them or rent them out, condos can be a wise investment. And when you get in on the ground floor of a new building, the possibilities are even more enticing.
When investing in pre-construction properties, buyers should be aware of potential restrictions on selling within a specific timeframe. If selling is prohibited, renting out the property can generate income while waiting for appreciation. Opting for the smallest or least expensive unit often leads to the highest return on investment, rather than splurging on personal preferences. Additionally, caution is advised in slow markets to avoid competition from developers reducing prices. Investors should be cautious of wholesale pre-construction investment deals and conduct thorough research to mitigate risks and maximize potential gains.
But hold on a minute—before you dive headfirst into this venture, there are a few things you need to know. Not all buildings are created equal, my friend. Location, developer reputation, the building itself, and the price—all of these factors play a crucial role. So, let’s explore some tips on making money on pre-construction condos. Get ready for some insider knowledge!
Finding a Reputed Property Developer Before You Buy
Now, picture this: you’re strolling through a lush green neighbourhood, admiring the architectural wonders surrounding you. But what’s that? A new condo building is about to sprout up, and you’ve got a chance to be a part of it. Exciting. Well, hold your horses. Before you jump on board, make sure you’re investing with a reputed property developer. Trust me; this is the first step towards reducing risks and increasing your chances of a successful investment.
Go for the builders who have proven themselves in the industry. You want someone who follows through on their development plans like a pro, completing projects on time and within budget. Look into the developer’s post-closing track record, my friend. This is essential not only for your peace of mind but also for maximizing the resale value of your condo. Remember, this factor holds even more weight if you plan to sell condos as a company. But hey, if you need help with all this research, call us. We’ll gladly take care of the homework for you!
Understanding the Cooling-Off Period of 10 Days
Here’s something you might not know about—there’s a cooling-off period when it comes to signed contracts for pre-construction condos. This little gem of a provision gives you a unique advantage in the pre-construction market, something you won’t find in the resale market. So, listen up and make the most of it.
In Ontario, the law requires all new condominium purchases to have a mandatory 10-day cooling-off period. What does this mean for you? Well, let me break it down for you. When you buy a condo from a developer, you have ten glorious days to decide whether you genuinely want that unit. And guess what? During this period, you’re not tied to any responsibilities, fines, or sneaky surprises. It’s like a safety net for you, my friend.
I strongly recommend taking advantage of this cooling-off period. You see, the real estate market in Toronto is moving at lightning speed. Buildings are selling out within months, sometimes even days, from their initial launch. And as demand rises, so do the prices. But fear not! The cooling-off period allows you to lock in the pricing and incentives that are initially offered. It also ensures that the builder can’t sell your condo apartment to someone else or increase the price. It’s like a shield that safeguards your investment.
So, what should you do during these ten magical days? First, I suggest getting a lawyer to review your builder’s Purchase and Sale Agreement. Let’s face it, legal jargon can be confusing, and you want to be fully informed about what you’re getting into. Your lawyer will be your guide, helping you navigate the intricacies of the contract.
Secondly, why not explore some alternatives? Take a look at similar pre-construction condo buildings. Compare prices and incentives to make sure you’re getting a sweet deal. And here’s the kicker—when you work with us, we’ve already done all this groundwork before you even sign the papers. The additional ten days are still a bonus.
What happens if the construction is delayed?
In case of delays in condo construction, your occupancy date might be postponed. This means you might have to wait longer before moving into your pre-construction condo. However, it’s important to check your agreement for details about potential delays and your legal rights as a buyer.
Can I sell my pre-construction condo before it’s finished?
Yes, you can typically sell your pre-construction condo before it’s complete, although the rules can vary. You’ll want to review your contract or consult with a real estate expert to understand the specifics.
What are the risks involved in buying a pre-construction condo?
Buying a pre-construction condo comes with several risks. These can include construction delays, changes in the real estate market, or deviations from the original condo plans. It’s essential to do your research and consider all potential risks before buying.
Are Pre-Construction Condos Worth It? – Final Words
To recap, buying a pre-construction condo is a major decision with many factors to consider. From understanding the pre-construction condo timeline to knowing what to do if your occupancy date for a pre-construction condo is delayed, it’s critical to stay informed.
In conclusion, the process of buying a pre-construction condo might seem daunting, but with thorough research, it can be a rewarding investment. Take advantage of resources like the Guide to Buying a Condo in Canada, the Consumer Protection Guide for New Home Buyers, and Understanding Condominium Ownership to help you make informed decisions.
Lastly, remember that every real estate investment comes with risks. Thus, it’s important to carefully weigh the pros and cons before taking the plunge into the Toronto housing market.