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, as real estate agents, we need to be ready 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’re 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, not all pre-construction developments in Toronto make for good investments. This doesn’t mean there aren’t great pre-construction investments, it simply means that it’s time to consider alternative options and their respective returns when investing.
There are a number of advantages to investing in the resale condo market and today we’ll cover our top reasons why you should consider resale investment opportunities in the Toronto market.
First off, let’s address a couple of myths.
Pre-Construction is Cheaper than Resale
It wasn’t long ago that pre-construction condos were almost always priced below their resale counterparts, which is why the pre-construction market has earned such a good reputation among investors. But today, with a growing number of pre-construction condos being built, the cost to build is more expensive. It’s a simple case of supply and demand.
Babak Eslahjoub of Core Architects said to The Globe and Mail that “construction costs are going up as a result of the demand being quite high; we’re the victim of our own success.” The price of land, material and labour have all increased for developers and they, too, need to make a profit off their investment and need to price projects accordingly.
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.
Investing in Pre-Construction Guarantees a Higher ROI
As we mentioned above, in the past, pre-construction condos were almost always priced below their resale counterparts but as of late, these pre-sale prices have become, in many instances, too aggressive and many are unjustifiable in the current market.
If you’re over paying for the product you lose the inherent advantage that pre-construction offers: equity gained during the holding period.
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. Some pre-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 whose intentions are to live in the building long-term. This is why it’s so important to work with a Realtor 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.
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 pre-construction 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 $850 per square foot compared to the same sized pre-construction property that’s selling for $950 per square foot.
While you won’t get the same price per square foot as a brand new building come resale, if you’ve bought in a reputable building that still sells very well, we can maximize your sale price and achieve a similar price per foot through things like staging. So not only have you purchased for less, but you get to boost your resale value because of the new buildings in the area — not to mention the extra income you’ve earned from renting it out for six years rather than just two.
FINANCING YOUR RESALE CONDO
The difference with resale is that you’ll need to have your financing and deposit monies (20% down) ready on closing, which would be in two to four months rather than pre-construction’s typical 15% down in the first year, followed by the remaining 5% three to four years later. But, if financing isn’t a road block, you have the opportunity to start building equity and earning rental income from your investment right away. Meanwhile, your tenant begins to pay down your mortgage today.
PAYING DOWN YOUR MORTGAGE PRINCIPAL
One of the major benefits of purchasing resale — if you can handle the hassle of being a long-term landlord — is that your tenant begins to pay down your mortgage principal today. Couple this with equity gains and you have yourself a healthy investment!
HOLDING YOUR INVESTMENT CONDO
Remember, real estate is a long-term investment. If you’re goal is equity gains — whether resale or pre-construction — expect to hold your property for at least six or seven years. This will protect your investment and allow enough time to generate a healthy return — especially in Toronto’s high performing condo market. New builds will boost resale values of their neighbouring buildings, provided you buy the right product.
A lot more to this conversation and a lot of moving parts to consider. This is why we always recommend speaking to an Realtor who is well versed in the Toronto market and who regularly invests their own money in real-estate.
If you’d like to discuss investment opportunities tailored to your unique situation, book a call today.