4 reasons landlords like buying pre-construction condos

March 19th, 2019 - by UrbanCondo Team

building development

There are a variety of reasons why landlords interested in property investment jump at the chance of a new pre-construction condominium development.

Pre-construction condos may look like risky investments to some, but with the proper research and planning, these types of builds can offer up a lower cost of admission into property ownership, especially for the new investor.

Condo prices are on the rise in major Canadian cities like Toronto and Vancouver, and likewise, more buildings are rising in response to the housing demand. Check out some of the ways landlords get the biggest bang for their buck in the pre-construction sphere below.

You have lots of time to plan

When you’re placing your interest in a pre-construction building that will take a few years to complete, you don’t have to provide the entire lump sum down payment like you would for a resale or detached home that is already built.

With the extended down payment plan, usually 5% at a time over the construction period, investors are given more flexibility, making the purchase more affordable to many who may not be able to pony up an immediate 20% down payment.

It’s a long-term investment

With the low investment of a drawn-out 20% down payment, there are greater opportunities for a long-term payoff.

Once construction has been complete and you are able to rent out the unit, much of the financial burden is taken off of your plate as a landlord. With condo units renting between $1,900 and $2,500 in Toronto at minimum, there is a high chance that the rental income will cover both your mortgage payments and any additional condo fees.

Vacancy rates are also low, hovering below 2% in Toronto, meaning the likelihood of your condo remaining occupied is high in the GTA. Pre-construction units in the right locations have the likelihood of breaking even, allowing the investor to look at other comparable pre-construction development to build their real estate portfolio even further.

A good location means great rental and resale demand

You have to choose the right location for this type of investment plan to work out properly. No landlord wants extended vacancies or a below market rent that doesn’t do enough to cover their mortgage and condo fees.

Research your area in terms of housing demand; locations near major transit and employment hubs are going to be the smartest investments. Similarly, if you’re able to discover the up-and-coming neighbourhoods in your city, you can get ahead of the demand curve at a lower upfront cost for the unit.

Choose a strong builder with a reputation for completing projects on time and also consider the design of the building and what type of tenants it's likely to attract.

Location is everything so make sure to consult with a real estate agent with experience in the pre-construction world. They'll have insider knowledge of all the buzzing neighbourhoods and upcoming projects.

Appreciation

A pre-construction unit appreciates in value before your first tenant moves in, and we’ll explain why.

When you invest in a pre-construction build before construction begins, you’re buying into the project at a discounted rate. Developers offer up steep discounts to early investors during pre-sales in order to secure better financing terms for the project and from their lenders.

This benefit is passed down to early investors, allowing them to buy into luxury buildings they may not be able to afford at resale time.

By the time the building is ready for residents, everyone who bought into the project during pre-construction has already gained equity!

Is this the investment type for you?

If you’re looking to invest in property in a booming city like Toronto, but can’t necessarily afford the multi-million dollar homes currently on the market, pre-construction is a viable option with a lower entrance cost.

If you can wait out the handful of years it takes for a pre-construction building to be erected, this unique investment opportunity has a high potential of paying for itself down the road.

Remember to research your location and builder thoroughly and consider finding a VIP Platinum Agent to get your foot in the door the fastest at your preferred building site.