10 Things You Should Know When Buying A Pre-Construction Condo
Buying a pre-construction condo can help you receive exclusive discounts, access better units, and can be a great investment opportunity. But buying a pre-construction condo can also come with some risks.
Here are 10 things you should know when buying a pre-construction condo.
1. Pre-construction Condos Are Usually Cheaper
Pre-construction condos are usually cheaper than resale units. Developers have to hit certain milestones in order to showcase their progress to their financial backers, so they are usually more flexible on the price for early buyers.
And if you collaborate with Platinum VIP agents, like Condo Shopper, you typically receive huge discounts, rebates, and incentives when buying a pre-construction condo in an early development stage.
2. Deposit Structure Can Be Flexible
Many people choose to invest in pre-construction condos due to their deposit structure, which can be flexible. Investors can usually put down 20% of the condo’s value, but the condo can appreciate its value significantly (sometimes by 100% or more) in the course of 3 - 5 years without any changes for the investor.
Typical deposits are generally spread out over a period of one year, making the process easier for investors. However, each project is different. A typical deposit structure would look like this:
- 5% deposit at signing
- 5% within 30 days of signing
- 5% within 60 or 90 days of signing
- 5% within up to 365 days or on occupancy
3. Delays Are A Real Possibility
Most developers take certain precautions to prevent delays. They set their closing date further back to account for the unpreventable, but delays are still a real possibility.
The truth is that most projects are delayed for one reason or another. If the project is delayed because of something the developers did, they get two chances to push back the closing date. If the delays are not provoked by the developers, they can push the closing date back without consequence.
4. Tenants May Cover Your Mortgage Payments
One of the many advantages that make pre-construction condos so attractive to investors is the possibility of having your tenants cover your mortgage payments.
Here’s the thing. If you buy a resale condo, you have to pay its mortgage and maintenance fees out of pocket. But with pre-construction condos, you start paying the mortgage only after the building is complete. In addition, you have plenty of time to find a tenant for a price that covers your mortgage and maintenance fees.
So the pre-construction condo may end up paying for itself in the long run.
5. Pre-Construction Condos Come With A Cooling Period
Ontario law mandates that all new condominium purchases come with a 10-day cooling period. This means that you can decide whether you really want the unit or not within 10 calendar days from the date of signing.
The law mandates that the grace period has no obligations or penalties, so it’s within your right to change your mind.
However, you can also use this period to your advantage. For example, if you’re interested in two pre-construction projects, you can reserve a unit and go look at the other one to make sure you get the best possible deal.
During this time, you can also take your Sale Agreement to a lawyer and have them review the fine-print legal jargon to make sure that you’re not entering an agreement that’s not as good as it seems.
6. Check The Developer’s Track Record
Not all developers have a great track record, so you should do your research before buying a pre-construction unit.
If you’re collaborating with a publicly-traded developer, the chances of experiencing countless delays and/or receiving an unsatisfactory product are pretty slim because the developer has to protect its brand equity.
But collaborating with small-time developers can be risky. Sometimes, small-time developers may underestimate the work required to complete a project, which may lead to significant delays or substandard work.
7. You Can Negotiate An Outside Date
Every time you invest in a pre-construction condo, you should expect to tie down your contract deposit for months or even years.
But that doesn’t mean that you should give up on your money for as long as it takes the developer to complete the project. You can ask your lawyer to negotiate an outside date and include it in the Sale Agreement. This would allow you to cancel the contract and get your deposit back if the construction isn’t completed by a certain date.
This can be especially useful if you’re investing in a thriving market because it enables you to take the money and reinvest it into another property.
8. Pre-Construction Investments Keep Pace With Inflation
The real estate market is so attractive to investors because it’s protected against inflation. When inflation goes up, the real estate market goes up with it. As a result, your investment doesn’t lose value long term.
In addition, you can also increase rents strategically to keep pace with inflation.
9. Pre-Construction Condos Have Additional Closing Costs
Unlike resale condos, pre-construction ones have additional closing costs. A typical closing cost represents around 5.5% of the purchase price in Toronto, depending on the contract.
10. Work With Condo Shopper To Get Early Access
Condo Shopper Registered Insiders get the Platinum VIP treatment, so we get early access to the best pre-construction condos in the Greater Toronto Area.
All of our Platinum Agents can offer exclusive unit choices, huge discounts, incentives, rebates, and more.
Check out the best pre-construction condos currently on the GTA market and contact us for more details.
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