Many clients debate whether to buy pre-construction or re-sale in the Toronto market.
You really need to do your homework to figure out which works best for your own needs.
Marketing centres of new construction sites that are specifically designed to appeal to your asthetic senses. MARKETING is used in all of its form to make you want to purchase their units. DO NOT walk in to a showroom by yourself, without a Realtor! When you do, the developers already made money off of you.
Always make sure you’re well educated on the real costs of buying and selling a pre-construction Toronto condo before jumping into a contract.
What are your real estate goals?
The first things I ask my clients thinking of entering the Toronto condo market are:
- What are your goals for buying a Toronto condo? Is it going to be a place to live or an investment property?
- If you’re investing, are you looking at rental income or a flip?
- If you’re planning on selling within a few years, are you willing to put in time, money and/or sweat equity to renovate a property or do you want to bank on rising market values to give your return?
Most buyers fall into 2 distinct types of pre-construction condos camps:
- End-users looking to live in the property who feel they’re getting a much better deal when buying pre-construction
- Investors looking to sell the property before occupancy or within one-year of doors opening
We caution buyers from both schools of thought as our analysis of data and trends show that, typically, pre-construction condos are overpriced by at least 10% and in fact offer less value than Toronto re-sale condos.
A better strategy for end-users may be to invest your down payment in a low-risk fund or GIC or open a high-interest savings account to bank your money for the next two to three years until you’re ready to buy. Then, purchase a newer condo that is ready to be occupied so that you can see the finished unit and ensure it meets your requirements and lifestyle.
A better strategy for a quick flip may be to purchase an undervalued re-sale property in a popular building that needs a little TLC. For those set on increasing their passive income, rental properties are still a solid investment strategy but remember that they’re not truly passive – you must be willing to take on landlord responsibilities.
So, when is pre-construction right for buyers?
Ultimately, that’s a choice based on individual buyer needs, financial situations and goals but I can certainly assist with all of the information clients need to make an informed decision. In general, however, we recommend that buyers of pre-construction properties in Toronto should want to:
- a) Occupy or rent out their unit for a minimum of two years starting from the interim occupancy period so that you have a better chance of turning a profit,
- b) Are prepared to spend the time, money and due diligence to have their unit professionally inspected before their Tarion Warranty expires (and deal with the builder on remedying any issues that arise), and
- c) Are confident that their lifestyle and needs are unlikely to change over the next five years, accounting for a typical three year wait time for a new development to be built and a minimum of two years of occupying the unit. This includes ensuring your financial situation is stable.
What are the Benefits of Pre-Construction?
If you tick all of the boxes above, pre-construction may be a good option for you. New construction condominiums do come with a number of attractive benefits, namely:
- They’re shiny and new. No one else has lived there and so there’s no wear and tear. Newer mechanicals and lack of operational debt mean that maintenance fees tend to be lower than older condo buildings.
- You have some control over final design including such things as flooring choices, paint colours and fixtures. But remember, customization can come with upgrade costs.
- You’ll have some peace of mind with a full year of Tarion Warranty coverage.
- There are still good pre-construction deals to be found. While on average pre-construction condominiums are over-priced this does not mean there are no deals left. Find the right building at the right price and you can benefit from higher than average value appreciation during the construction phase while putting little down upfront.
Make an Informed Decision
My job is to help you make the right condo purchase. Due to the complexities involved in buying pre-construction DO NOT rely on a developer’s assigned agent, they are working for the Developer!