The pros and cons of buying pre-construction as a landlord

May 11th, 2018 - by UrbanCondo Team

A rental agreement form.

Buying a pre-construction condo as an investment property is a great way to see a return on your money. However, there are pros and cons to every investment decision, and this one is no different. If you are a landlord looking to buy pre-construction, read on to see the positives and negatives of making an investment.

The pros of buying pre-construction for renting

Able to pay in smaller instalments – While you need to make a down payment to your builder when buying pre-construction, you are able to do so in instalments. You are often able to pay in 5% increments during the duration of the build, allowing you to save up money for the down payment over time instead of all at once. 

Lower condo fees New buildings tend to have lower maintenance and condo fees, saving you money when renting out your property. Because the building is newer and requires less maintenance, the associated fees are lower.

Less unit maintenance needed – As with condo maintenance, in-unit repairs become more common as a unit gets older. By buying pre-construction, you’re starting out from scratch, meaning you’ll have new appliances and a new structure without any wear and tear.

Increases in value – Without doing much of anything, your condo will rise in value. When you buy pre-construction, you are investing in a picture and an idea. Because real estate markets tend to trend upward, your property will be worth more than you paid by the time it becomes a physical reality. 

Higher rent for new places – New rental properties tend to have higher rental fees than older ones. By charging higher rent, you’ll be able to recuperate your initial investment back quicker, and start making a profit.

The cons of buying pre-construction for renting

Pay more upfront – While you are able to spread out the down payment in chunks, when it is all said and done, your down payment tends to be more than that of a re-sale condo. Your may only need to make an initial 5% down payment for a pre-construction unit, however, your builder will need a total down payment in the range of 20% before you take occupancy.

Delayed return – The nature of the pre-construction beast is that you will not see an immediate return on your investment. Because your condo is still being built you are not able to gain revenue from potential tenants until the building’s completion. Unfortunately, delays can also happen, which will potentially delay your return even further.

Market value is harder to determine – Because your pre-construction building is brand new, it is slightly more difficult to attribute a rental value to it. Not knowing exactly how the unit will look makes it difficult to know exactly what you’ll charge, which in turn, makes it difficult to estimate how long it’ll be before you see a return on your investment.

The take away

Buying pre-construction as a landlord is a great investment, and will pay off in the long run. However, it is a game that requires patience. While you will see a return on your investment, it will not happen overnight. If this is an investment avenue you are thinking of taking, it’s necessary to acknowledge both the short and long-term financial implications before making a final decision.