How to win at investing in pre-construction condos
Investing in real estate has always been known as almost a sure thing. The idea is that people will always need a place to live or a place to do business in, and the prices of real estate will increase over time.
But what if you could buy a future property at today’s prices? Let’s say you are looking to invest in real estate today, but are not ready to deal with any of the hassles real estate investment comes with, like neighbors, or renters, or maintenance and repairs. Pre-construction condo investing probably sounds like a good solution. It’s risky, yes, but the reward is worth it.
Here are few ways you can win when you start investing in pre-construction condos:
Buy a condo tomorrow, at today’s price (make sure delivery is at least 1 year out)
Buy the cheapest unit of the type you want (you’ll get the same rent, but pay less!)
Understand and research any tax breaks you get for a new construction purchase
Advertise your unit early — renters love brand new units!
Consider furnishing it — Advertise as furnished and apply rent premium
Don’t buy in established neighborhoods, find the up-and-coming gentrifying areas
If you’re in a downtown location, consider not buying parking
Amenities = happy renters
Make sure to buy a storage and bicycle space
Avoid low floors, unless you get an AMAZING deal
Let’s dive into more details!
How it works: pre-construction condo investing
This is how it works: pre-construction condos are cheaper because the developer is still fundraising and would like to get as much money as possible before breaking ground. You also may be able to have a say in your actual floor-plan, effectively designing your own home, which you can’t get with a finished property.
When you invest during the pre-construction phase, all you have to do is wait a couple of years, and the value of your condo will have gone up significantly. And you won’t have any property related expenses during that time.
Of course, there are many things you have to take into consideration, and you should certainly not rush into this kind of a decision. As we said earlier, pre-construction condo investing can be risky, but a lot of research can eliminate most of the risks, living you with a fantastic reward.
Benefits of pre-construction condo investing
We already mentioned it is less expensive than investing in a completely finished condo. If you are patient and don’t need to move in right away, this is a great opportunity!
Early investors are also more likely to be offered options on splitting deposits. So, rather than paying the full 20% up front, there are more likely to be options for paying 5% quarterly, depending on the developer. That leaves you more money in the bank to keep earning interest, which is a useful benefit for smaller or first time investors.
Other than the possibility to design your own floor plan, you should also be able to get the upgrades you always wanted, turning this property into your dream home. A dream home that someone else will build for you.
As an early investor, you are more likely to get a pick of the premium units with the best views or access to facilities and amenities. Those little extras will help sway or help you have a more competitive rent when it comes to tenants if you plan on renting it out later. It will also help increase the value of your property if you plan on selling.
Pre-construction condos: numbers
Let’s look at how condos have appreciated in some of the big Canadian cities over the past few years.
According to the Toronto Real Estate Board Report, the average price of a condominium in Toronto in 2015 was $366,939 across all regions. In 2018, the average price per square foot was between $876 and $1,000 depending on where the condo is located. That means a 700 sq ft unit will range between $613,000 and $700,000, depending on its location. That means condo prices in Toronto increased by about 55 percent over the past four years.
Montreal has seen an increase in condo prices, as well. According to the Quebec Federation of Real Estate Boards (QFREB), the average price of an Island of Montreal condo in 2015 was $298 per square foot, which means that a 700 sq ft unit would have cost you $208,600. In November 2017, you could have bought a condo on the Island of Montreal for $496,103. That is an increase of 42 percent over the last four years.
Not every market is the same, and not all the condos in every city appreciate at the same rate, but we learn from history that condos in big cities will likely appreciate at a fairly steady rate.
Take into consideration that with pre-construction condos, your buying price is lesser than the current price of finished condos, which means that your condo will be ready to make you quite a bit of money once it’s actually completed.
Great rewards, but what are the risks
As we said before, there are some risks that come with pre-construction condo ownership. It’s important to be aware of that as you decide to take this step, so that you can be well prepared. Here are some tips on how to do that.
Read everything, twice
Make sure you read and understand the contract. Make sure you understand the payment plan. Make sure you look for any additional costs, outside of the contract. Also, research the developer, their previous project, and read all you can find about them. Make sure they’ve been successful in the past, with their previous developments.
Ask a lot of questions
You are the investor in a construction project, which means the developer should be going out of their way to accommodate you and your questions. Take advantage of this, and ask anything you think will be useful for your research. Also, look into finding people who have invested in projects with the same builder, and who have already moved into their condos. Their advice will be invaluable.
Be prepared for changes
You are picking floor plans, and views, and kitchen counters ahead of time, but be prepared for one or more of these things not to turn out exactly the way you wanted them. This happens a lot in construction.
Be prepared for delays
Yes, unfortunately, it is likely that there will be delays. Add a year or two to your expectation, and you should be fine. That’s just another year or two your property will be appreciated without any additional investment.
Get professional help
Make sure a lawyer looks at the contracts, and you may even want to hire an intermediary company to deal with the developer for you. They are likely to already know all the best developers, their reputation, and can negotiate for you.