Making the Smart Decision When Investing in Pre-Construction Condos Vs Resale Condos
There are so many options when it comes to investing in real estate but one of the questions we get asked the most is, “What is the best investment when it comes to Toronto pre-construction condos versus re-sale condos?”
The real estate market is always in flux and this can make investing exciting, but it can also make it extremely difficult for investors. The market can change week to week as much as it can change year-over-year and the re-sale or pre-construction Toronto condo market your watching is probably in flux too.
We’ve all witnessed this first-hand at the beginning of 2022. As both a Toronto pre-construction real estate agent and a re-sale agent I can help you prepare for every type of curveball the market sends our way.
As experts in our field, we’re constantly tracking the active market and are adjusting our strategies in order to earn our clients the best returns possible. By monitoring trends and pricing in all areas and on all products, we are finding the best investment opportunities based on the market at the time.
Over the past few years we’ve been strong advocates for investing in Toronto’s pre-construction condo market but as pre-construction prices creep up beyond their resale counterparts due to increased land, labour, and material costs — not all pre-construction developments in Toronto make for good investments. This doesn’t mean there aren’t great pre-construction investments in Toronto, there definitely are, it simply means that it’s not the only option when it comes to making a good ROI when investing in Toronto real estate.
Browse: The Best Pre-Construction Condos Launching in 2022.
There are a number of advantages to investing in the resale condo market, let’s cover our top reasons why you should consider resale investment opportunities in the Toronto market.
First off, let’s address a couple of myths.
Buying a Toronto Pre-Construction Condo is Cheaper than a Resale
It was only a handful of years ago that your pre-construction condo investment was almost always priced below resale counterparts, which is why the pre-construction condo vs resale condo market earned such a good reputation among investors. But today, with a growing number of pre-construction investment condos being built—especially in Toronto—the cost to build is more expensive. It’s a simple case of supply and demand and pre-construction pricing is fast out-pacing its re-sale counterpart.
StatsCan published there year-over-year growth in construction costs, which is at an all-time high for residential construction at 21.7%. Toronto is a victim of its own success as the price of land, material and labour have all increased for developers and they, too, need to make a profit from their investment and need to price projects accordingly.
RELATED: Why Is Toronto So Expensive?
It’s important that your Realtor is always looking for the best investment opportunities—whether that’s resale or pre-construction—with the best profit margins and this will vary depending on the area and the state of the market.
Related: Why $1400psf is Toronto’s New Real Estate Norm
Investing in a Pre-Construction Condo Guarantees a Higher ROI
As we mentioned above, in the past, pre-construction investment condos have almost always been priced below their resale counterparts but as of late, these pre-sale condo prices have become, in many instances, too aggressive and many are unjustifiable in the current market. There are many pre-construction opportunities that are priced high because they’re iconic and/or one-of-a-kind. We call these “status” condos, which is like buying a luxury brand name simply for the bragging rights. These do not make good investments.
If you’re over-paying for the product you lose the inherent advantage that pre-construction offers: equity gained during the holding period. Your real estate broker should be your advisor in navigating the good investments from the bad.
Check Out: Real Returns From My Clients’ Pre-Construction Condo Investment Portfolios
The Best Pre-Construction Deals Always Sell Out in a Day
Consumers are getting fooled by the hype around any hot new projects in a great location and are quick to pull the trigger by putting their money into them. Most new construction condo developments are actually charging more per square foot than resale is trading for in the same area. The lack of education for some investors could lead them to overpaying.
As builders continue to command high prices the trend will continue as there are always going to be buyers that will pay the price. This is specifically true for end-users who intend to live in the building long-term. This is why it’s so important to work with a pre-construction real estate agent that you know is looking out for your best interests and who will tell you whether they believe in the project or not. Frankly, I won’t sell anything I wouldn’t buy myself.
WHO CAN INVEST IN RESALE
If you meet these three major qualifications you’re likely a good candidate for resale investing.
- You have a 20%+ down payment ready to go.
- You can qualify for a mortgage today.
- You don’t mind being a landlord for an extended period of time.
FINDING THE RIGHT INVESTMENT FOR YOU
There are a number of factors that come to play when deciding which investment is for you. If you meet the above qualifications resale might just be the right one.
I say might because I always recommend that if you’re thinking of investing that you book a call with me to discuss your unique situation and goals. The market is always changing and my recommendations will always change with it.
It’s important to find a property that is priced well and in the right location with good market growth potential. This means it matters what you’re buying as much as for what price. I’ll discuss your options at hand and recommend a strategy that will maximize your return whether that’s a pre-construction investment condo or a re-sale investment condo.
WHY RESALE IS A GOOD INVESTMENT
As it stands right now in the market, you may be able to make money faster in resale as the market adjusts. The key is finding the right price; ideally for properties that are equal or less than the pre-construction pricing in the same area. If you can buy a fairly new resale condo with a good floor plan, from a reputable builder, in an area where pre-construction is being built — that new build next door will float your resale investment price up when it comes time to sell.
Let’s say you find a 700sqft resale property that is going for $1000 per square foot compared to the same sized pre-construction property that’s selling for $1300 per square foot.