Why Pre-Construction Condos Are A Great Investment In 2024

What Are Some Of The Risks Associated With Pre-Construction Condo Investments?

• For starters, it hasn’t been built yet, so you’re making a purchase based on drawings of what the finished building and suite will look like.

• Unlike buying a freehold property such as a house, you must pay for maintenance, upkeep, and shared utilities in addition to the purchase price.

Debunking Popular Pre-Construction Condo Investment Myths

Unfortunately, many people’s thoughts are clouded by a number of widely held misconceptions regarding the condo-buying process. That’s why it’s crucial to weigh all of the pros and drawbacks of purchasing a pre-construction condo before making a decision. Below I breakdown 7 myths that I often see my clients worried about:

They are all expensive and over-priced

Are pre-construction condos cheaper? While the truth is that Toronto real estate in general has become expensive – and so too has Durham and the GTA. In many situations, buying a condo is a more reasonable and desired alternative than buying a freehold property, especially in Toronto’s downtown area. “The single-family home market has become expensive,” says Stéfane Marion, chief economist at the National Bank. And for many, this might feel like an understatement. According to the Globe and Mail, ” This is the truth for places like Vancouver and Toronto.” that has driven many first-time buyers into the condo market.

While we can’t argue that they haven’t become more expensive, we can explain why. But, it’s a long-winded explanation and deserves its own article entirely. If you’re interested, we explain here why Toronto is so expensive.

When it comes to pre-construction condos specifically you need to work with an educated realtor who knows how to invest. Not all pre-construction buildings are equal. There aren’t a great deal. Just because you invested in a project in its first Platinum phase doesn’t always mean you overpaid for it. Get yourself a realtor who will tell you the truth and guide you to appropriate investments.

Related: 5 Cheap Pre-Construction Condos In Toronto Under $600K

It’ll be forever until your condo is ready

It’s a widespread misconception that if you buy a condo when it’s still in the planning phases, you’ll be old before you even walk through the front door. While this is sometimes true, it isn’t always the case, especially if you do your homework and buy from a trustworthy builder with a proven track record.

While delays might occur due to factors beyond the builder’s control (such as labour strikes or bad weather), top-rated condo developers will always make it a priority to keep to the construction schedule as closely as possible. Before signing on the dotted line for your new condo, make sure to verify the builder’s history on Tarion’s builder directory.

It’s also important to add that if you’re a long-term investor and not looking to flip your pre-construction unit – then a long build timeline can actually be quite the advantage. With most pre-construction condos requesting their final 5% deposit at occupancy you can take advantage of a lower down payment during the build. We also recommend you buy pre-construction condos for their equity gains rather than their cash-flow potential as many will run negative. While your loss in cash flow is considered a right-off a longer build time can often mean a shorter rental period.

Related: Condo Construction Timeline: From Sales To Occupancy

You will need to make an initial deposit of at least 20%

For a Canadian buying a pre-construction condo apartment from a builder, a typical deposit is 20% of the purchase price (international buyers typically pay 35 percent). Now, if you’re purchasing a $500,000 suite, 20% is a considerable sum of money, especially when paid all at once. Fortunately, excellent, and reputable contractors do not need a one-time payment. Payments are generally spaced out over a period of time, in some cases up to years, most with only 15% upfront.

If the property developer fails, you will lose the money you invested

While the risk is modest, developers have already declared bankruptcy. As a result, the Ontario government has regulated the Tarion Warranty Corporation to ensure that all new home buyers are protected. If a project is terminated, the vendor is obliged under Condominium Act to refund all monies paid by the purchaser, plus interest calculated in accordance with the Condominium Act.

If the deposit monies are no longer in trust, then the purchaser has alternative protection being the third-party backstop of Tarion and/or an insurance company. The purchaser can turn to Tarion for payment of the deposit or portion that has not yet been returned, up to $20,000. It is also possible that anything over $20,000 is protected by a third-party major insurance company that has issued a deposit protection policy for the money.

You do not know what you will get

If you buy a condo from a well-known developer during the pre-construction period, there’s no reason to be concerned that it won’t live up to your expectations. Take your time exploring the sales center’s presentation room, paying great attention to the floorplans, finishes, and amenity renderings, and don’t be afraid to ask questions. You may also go to other buildings by the same developer to see what they’re like and get a sense of the style and mood to see if it’s something you’d enjoy. Purchasing a suite from a reputable builder with years of expertise and previous projects guarantees that the unit and building amenities will meet your expectations – should they be reasonable.

You will get a surprise bill at the time of closing

When considering if pre-construction condos are a good investment it’s easy to ignore the entire cost of ownership, but it’s important to factor in all costs when seeking to buy a condo, which is more than simply the deposit and mortgage payments. Maintenance fees, property taxes, utilities, and other expenses must all be factored into the budget. Then there are closing expenses, which are an important factor to consider when purchasing a condo under construction. Land transfer taxes, meters, legal expenses, warranty fees, development levies, and administration fees are all included in the closing costs.

Development levies, in particular, have recently sparked debate in the media. To help support civic infrastructure, condo developers are required to pay specific development levies to governments. Developers frequently offer monetary donations to assist create public community centers and parks in exchange for authorized height or density increases. It’s crucial to find out how a developer handles these costs if you’re buying from them. Are they already included in the purchase price, or will they be added later?

A good builder will not try to hide any closing charges from you and will endeavour to include any additional fees in the suite’s pricing so they may be factored into your mortgage payments. When comparing costs, keep this in mind. If one developer’s suite appears to be more expensive than the others, it doesn’t always imply you’re overpaying. It might indicate that all expenditures (including development taxes) are included in the purchase price, ensuring that there are no unpleasant surprises at closing. Be wary of developers that try to attract you with low rates; you could wind up writing a large check at closing.

It never hurts to do your homework and have a lawyer WHO REGULARLY DOES PRE-CONSTRUCTION AGREEMENTS look over the Purchase and Sale Agreement, Disclosure Statement, and Tarion Addendum (if there is one). This will help you to get the most out of what you invest in pre-construction condos. When you work with our team we’ll recommend someone great.

Property developers are not concerned about the buyers

While there are some developers who are only interested in making quick money on condo buildings, the assumption that all developers have the same aims is false. Many developers truly care about the end-user and their reputation.

Tips On How To Make Money On Pre-Construction Condos

By now, you might be slightly more confident about investing in pre-construction. The good news is that condominiums are a wise investment whether you want to live in them or just want to rent them out. Getting in on the ground floor of a new building is an exciting proposition, especially when you have a say in the developer and location. It’s important to remember that not all buildings are created equal – location, the developer the building itself, and of course, the price – are all important factors.

Now it’s on the fun part – how to really make money on pre-construction condos. Here are my top 3 tips!

Find a reputed property developer before you buy

When you only invest in renowned builders, investing in a pre-construction condo becomes fundamentally less hazardous. Choose a developer who has a proven track record of following through on their development plans on time and on budget.

Begin by looking at the developer’s post-closing track record. It’s important to remember that this isn’t merely a pre-construction condo investment. It is, nevertheless, critical if you want to ensure that you obtain the best resale condo value. Consideration of the builder is an important consideration to make before proceeding with any real estate transaction. If you wish to resell condominiums as a company, this is also true.

Or really – just call us to help you invest and we’ll take care of all that homework!

Related: 9 Best Condo Developers In Toronto

Understand the cooling-off period of 10 days

There is a cooling-off period when it comes to signed contracts for condos before they are built. All new condominium purchases in Ontario are required by law to have a 10-day cooling-off period. It provides you with a competitive advantage in the Pre-Construction market that you don’t have in the Resale market.

When buying a condo from a developer, you have ten calendar days from the date of signing to determine whether or not you want the unit. There are no responsibilities, fines, or “gotchas” during the 10-day grace period.

I recommend taking advantage of the 10-day cooling-off period. The real estate market in Toronto is quickly expanding, with buildings selling out on average within 3-6 months of their first sale – and many within days of launch. Builders typically raise pre-construction condo pricing on a regular basis and modify incentives when sales to the general public begin.

The 10-day cooling period gives you the opportunity to lock in the pricing and incentives. It also assures that the builder cannot sell or modify the price of your condo apartment to anybody else. During your ten-day cooling period, I propose doing two things. The first is to have a lawyer go over your builder’s Purchase and Sale Agreement.

Second, consider alternative possibilities. Take a peek at a similar pre-construction condo building. To be sure you’re receiving a decent deal, compare pricing and incentives. Again, if you work with us we usually have done this before you even sign the papers, but the added 10 days is still a nice bonus.

Understand the Difference Between Interim Occupancy and Closing

Interim Occupancy occurs when you receive the keys and are able to move into your apartment, but you do not yet own it. There are two ‘closing’ dates for condominiums:

A) What Is Condo Interim Occupancy?

The first is Interim Occupancy, which occurs when you get the keys to your apartment. Owners’ occupancy is staggered, generally, a couple of floors every week, so that not everyone moves in on the same day.

The structure is still unregistered at this time. If you acquired from a reputable builder, registration and final closure typically takes place within 6 months of temporary occupancy. Condo developers such as Tridel are known for acting fast and effectively to have their projects registered.

Read More: What Does The Interim Occupancy Period Mean Buying Pre-Construction Condos? 

B) How Much Do Interim Occupancy Fees Cost?

Interim Occupancy Fees are the fees you pay to the builder to use the apartment temporarily. Because you won’t have the title to your property until it’s registered, your mortgage won’t start until then. This is referred described as “rent to the builder” or “phantom rent” by some, although it’s simply:

C) Your Condo Maintenance Fees on a Monthly Basis

The interest payment on the 80 percent borrowed for the purchase is the first installment of your condo fees (assuming 20 percent down). The builder calculates your interest payment using the Bank of Canada key rate, and you pay the builder directly.

Your monthly carry expenses will be cheaper during interim occupancy than they will be following registration. This is due to the fact that you have yet to begin making principal payments on your mortgage.

Maintenance costs for the building’s basic care, as well as any amenities, are included in other condo fees. Although these condo costs are shared among all residents, the amount you must pay is reduced.

D) What Do You Mean When You Say “Final Closing”?

When the builder registers the Condo Corporation with the city, the transaction is complete. This is when your bank pays the builder the remaining 80% balance, your mortgage begins, and you receive your unit’s title.

Final adjustments and closing expenses will be computed and paid at this time. Legal expenses and land transfer tax are examples of this. Plus, any other closing expenses specified in your Purchase and Sale Agreement.

Bonus Tip

In some cases, you may be able to use a line of credit to leverage your investment even further for a really spectacular return on investment. This concept is one of my favourite tools for building my client’s wealth at an exponential rate. It’s so good we’ve written an entire series on leveraging the equity in your home to invest in Toronto pre-construction condos. Make sure you give it a read.