When it comes to buying a condo, what’s a better investment? Buying one that’s already built and is being resold, or buying on the hype of a new building that’s yet to be constructed?
Jana Masiewich considered both a resale and pre-construction condo before deciding that buying a condo prior to it being built presented a better opportunity for her to make money on her investment. The 29-year-old, who lives and works in downtown Toronto, was looking for a condo property that met her criteria, in particular one in an up-and-coming area of the city. But she also had to discuss with her advisers whether she had the cash to purchase a yet-to-be built condo now.
To land confidently on her decision she consulted with her financial planner, her realtor, and did her due diligence on the developer building the condo. Ms. Masiewich says she understands there is some risk in buying pre-construction, but if you do your research, and go with a credible builder, then you significantly reduce the chance of a bad investment.
Working with a quality developer is key, and a bad developer in a good location can equal a bad project, says Roy Bhandari, who specializes in helping investors buy condos prior to construction and shares resources relating to these purchases on his site TalkCondo.com
To review the team on a pre-construction building take a look at the Urban Building Database. You’ll find information on the developer, the architect, the designer, and other businesses associated with the development. You can also see past buildings by the developer and whether or not they were competed on time.
However, on average, no project completes on time, according to Kate Robichaud, a realtor with REMAX who also assisted Ms. Masiewich with her purchase. Ms. Robichaud always asks clients if they’re willing to wait even longer than the date of completion, to consider where they think they’ll be in two years time, and if they’re willing to live through the mess and remaining construction on the building once they are in their unit.
“Patience is a virtue,” laughs Ms. Masiewich, who won’t be moving into her new condo for at least three years.
While it might be a wait to move in, the initial financing moves fast. “It can be financially daunting to put down 20 per cent in six months. Most people don’t walk into a sales centre with $50,000 in a briefcase,” says Ms. Masiewich, who is accessing the Home Buyers Plan, her savings, and short-term family loans, to meet the financial requirements. The downside is having this 20 per cent tied up, with no monthly returns, for the next few years.
The deposit is essentially the investment, says Mr. Bhandari. Nowadays, the deposit ranges from 15 cent to 25 per cent, and you are using this money as leverage. Before you commit to buying a condo that isn’t yet built, you need to look at comparable properties on the market today and the growth rate of the neighbourhood you are buying into. In some cases, there will be a premium on pre-construction condos because they are newer buildings, with better amenities, and will likely be more in demand when move-in date rolls around.
“Nobody has a crystal ball, but we can go on historical market values to forecast appreciation,” says Mr. Bhandari.
But how do you know that your condo is going to appreciate in value? Working with a realtor who has experience purchasing condos prior to construction is key to being able to assess the strengths and weaknesses of each project, according to Mr. Bhandari. Without working with the right realtor you might not realize that the prices in the area you’re looking at have already increased in value, or that you negotiated your own deal on price, but didn’t negotiate other important details including getting the upgrades you want and having building costs capped by the builder. It’s not just about price, it’s also about value, he says.
It’s also important to cut away from the glossy advertisements and the staged showrooms that have you buying into a fantasy life you think you’ll have once you get the keys to your new place. Buying a condo prior to construction takes time and it’s not a get-rich-quick scheme, says Mr. Bhandari.
“A good deal may not necessarily be a good investment.”