We answer your questions on investing in pre-construction condos vs resale condos in Toronto, Canada so you maximize your ROI and make a smart investment.
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.
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.
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 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.
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.
If you meet these three major qualifications you’re likely a good candidate for resale investing.
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.
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.
While you won’t get the same price per square foot as a brand new building when it comes time to sell, 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.
WHO CAN INVEST IN PRE-CONSTRUCTION CONDOS
Below are factors that indicate if you are a good candidate for a pre-construction condo investment.
WHEN PRE-CONSTRUCTION IS A GOOD INVESTMENT
When it comes to re-sale or pre-construction there is no clear-cut answer but when it comes to making a good investment in the Toronto pre-construction market, there are certain factors that contribute to higher returns. This is where working with a pre-construction real estate agent who’s well versed in pre-construction is invaluable.
When it comes to finding a good quality pre-construction investment, their ability to know which builders are reputable and which layouts will rent (and later sell) for a premium are huge in choosing a good investment.
Having the foresight and ability to recognize which neighbourhoods are expected to take off over the next few years can help you to find opportunities that may even have profit built in on signing. If a new condo is being added to an area where inventory is low and is expected to remain low, those deals hold promise as they’re likely to be priced lower than those in areas with lots of inventory but will likely see quick market growth in the years to come.
PAYING DOWN YOUR MORTGAGE PRINCIPAL
One of the major benefits of purchasing real estate investments, both new construction and resale, is that your tenant begins
to pay down your mortgage principal today. Rents in Toronto are continuing to climb and, as of 2019, new condos are exempt from rent control. Couple this with equity gains and you have yourself a healthy investment!
WHEN PRE-CONSTRUCTION IS A GOOD INVESTMENT
Remember, real estate is a long-term investment, you should always try to hold your pre-construction condo investment. If your 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 build condos will boost resale values of their neighbouring buildings, provided you buy the right product.
If you’re looking to make money quick and are thinking of flipping pre-construction condos in Toronto you’ll want to check out this article we wrote.
A lot more to this conversation and a lot of moving parts to consider. This is why we always recommend speaking to a Realtor who is well versed in the Toronto market and who regularly invests their own money in real estate.