A pre-construction condo as an investment property
Pre-construction condos are rapidly becoming a popular investment option for speculators. Real estate, especially in major Canadian markets like Toronto, has steadily trended upward, with the exception of a few brief detours. Condos in particular have experienced significant growth, with the average sale price of a condo in Toronto soaring from $458,122 to $532,700 between December, 2016, and 2017 alone. That’s a 14% increase in one year.
Pre-construction condos benefit from the rising real estate market as much as existing buildings, and offer speculators several unique additional benefits.
Small down payments
The problem many speculators face isn’t knowing that residential properties are profitable; it’s getting their foot in the door. Because sure, it’s great to buy a home for $700,000 and sell it for $800,000, but not everyone can easily come up with the funds for the down payment, property taxes and real estate fees.
The pre-construction condominium market has a lower threshold for entry than other comparable markets. Though investors are required to make a down payment in order to acquire a unit, the sum is relatively low.
In Canada, home-buyers are required to pay mortgage insurance if their down payment is less than 20%. This leaves buyers with a choice – either make a smaller down payment on a more valuable property, or chose a less valuable property to avoid paying mortgage insurance.
Pre-construction condos offer an ideal middle ground. Rather than requiring a 20% down payment straight out of the gate, these properties require a relatively small 5% deposit. A series of subsequent deposits are made over the next 12-18 months, totalling 20-25% of the purchase price.
While buyers are ultimately required to make approximately the same down payment for a pre-construction unit, payment is made over the course of nearly two years, as opposed to a single lump sum.
Today’s prices for tomorrow’s value
No market is invulnerable to fluctuations, but property is as reliable as they come. Markets have historically risen consistently, and nearly every person that has held property in Toronto has been able to sell at a profit.
In fact, a common refrain among investors is the regret that they didn’t buy into the market a few years ago. It doesn’t matter when - “a few years ago” has always been a great time to buy in. Pre-construction condos, in essence, let you do exactly that.
If you bought a pre-construction condo in 2014, you may have paid the average cost of $390,989. By the time the condo was completed, and you took possession of the unit, you would own a condo with a 2018 market value of over $500,000, assuming your unit mirrored the movement of the market as a whole.
While buying pre-construction does require delayed gratification, it allows you to buy in a favourable market, with a small deposit.
Avoid going over budget
Houses and condos are often the subject of bidding wars, which can coerce buyers to go over budget. Pre-construction condos help you avoid this issue. If you buy early, you can procure a unit with relatively little competition. The absence of competitive bids makes sticking to a budget much easier.
While pre-construction condos, like other types of homes, do have costs beyond the sticker price, we’ll help prepare you, so you’ll know exactly how expensive your investment will be.
A pre-construction condo as your next home
Pre-construction condos are a great option for buyers looking to find a new home. The obvious hurdle is that a pre-construction unit is not move-in ready, and can take several years to reach completion. However, those willing to delay their gratification will reap numerous advantages.
When you come across a condo unit that’s for sale, you’re only option is that unit. You don’t get to choose whether it faces south or has a certain floorplan. You don’t get to decide whether you’ll be on the second floor or the 30th.
With a pre-construction condo, these elements are within your control. Units come on the market in blocks, so you have way more freedom to choose the variables that would otherwise be predetermined. When you’re looking for a home you plan to spend several years living in, it’s nice to have as much control as possible.
Home prices in Toronto are prohibitive for many people. With detached homes averaging over $1M and the price of condos rising by leaps and bounds, opportunities to become a Toronto homeowner are dwindling.
Pre-construction condos tend to be cheaper than other types of housing. An existing condo the same size, built in the same neighbourhood, will invariably go for more than a pre-construction unit. Of course, buying pre-construction means you are unable to move in for at least a couple of years.
A nice luxury of buying pre-construction is that the appliances and amenities in your home and condo are all new. Your fridge, dishwasher, washer and dryer come without any miles on them. If your building has a party room, a gym, a pool, a sauna – they’ll all be new.
No wear and tear on your home
It’s not just the amenities that are new; the structure, water-heater and pipes are all new as well. This leaves less potential for a problem or inconvenient situation, like a leak underneath the sink, or water dripping down from your upstairs neighbour’s unit.
Such issues tend to correlate with building age, so there is no better way to mitigate risk than buying into a building with negative years.
New buildings have lower condo fees
Condo fees are used for group projects and maintenance. Because pre-construction buildings have new everything, less funding is required straight out of the gate. A building’s condo fees may (and probably will) increase within a few years, but it’s common to pay relatively low prices at the beginning.
You know the cost
If you’re planning a move sometime in the next few years, monitoring the market can be stressful. The same unit you want can fluctuate in price by $100,000 or more in a year, making it difficult to construct a financial plan that’s suitable for the long term.
When you buy a pre-construction condo, you know the price. You needn’t worry that the market is going to explode and all your savings will become insufficient. Instead, you invest in a future home at a flat rate, allowing you to avoid being victimized by a runaway market. This way, the only effect a market increase has on you is that your home increases in value.
A pre-construction condo as a rental property
Buying a pre-construction condo for the purpose of renting it to a tenant is a common practice. Many of the same benefits that help investors and residents – smaller investment, greater choice of units, etc. – benefit both the landlord and tenant.
Additionally, buying a pre-construction unit for the purpose of renting it offers several benefits, especially for buyers working with the UrbanCondo team.
Earn greater rent revenue
Because of the relative quality and newer amenities, new condo units tend to rent for higher prices than old ones. This means that if you buy a condo for the purpose of renting, your options are to buy an existing unit, which will probably be more expensive and earn you less monthly income, or buy a pre-construction unit, which will be cheaper and yield higher rent.
Of course, it’s not always so cut and dry. While you might pay more and earn less from an existing unit, you are able to start earning rent immediately, while revenue from a pre-construction unit will not flow for a few years to come.
We'll help you find tenants
In addition to our real estate experience, we manage hundreds of properties around Toronto, and have a long track-record of finding ideal renters.
First, we ensure that your unit is seen by the largest group of prospective tenants in the market for a condo within your price range. Then we employ a rigorous screening process to ensure that only suitable applicants are processed. If there is ever a dispute between you and your tenant, we provide assistance in finding a satisfactory solution.
Easily maintain multiple units
If you rent multiple units, it’s convenient to have them close together. Few opportunities to buy several units in a single existing building will ever arise, but because pre-construction units are sold in blocks, you can procure multiple rental properties within a single building.