Thanks to COVID, we’re facing a condo market that’s friendlier to buyers than it’s been in a long time. So it’s definitely a great time to buy a resale unit. But what about buying something in a project that hasn’t been built yet? Is now a good time to buy a pre-construction condo?
Well, it depends. If you’re looking for a deal and you want something you can take possession of right away, resale is probably your better option at the moment...a fair number of recent listings have sold for under asking, which means you can get some great values in resale right now.
But of course, that’s assuming you’ve got the cash on hand for a down payment. Thanks to COVID, a lot of people have lost their jobs or are earning less, and many have had their savings affected by the pandemic’s impact on the stock market...savings that were allotted for buying a home.
Pre-con is good if you need more time to save
Artform Condos
Don’t have enough for a down payment on a resale condo right now? Buying pre-con gives you the flexibility you need to pull that money together over time. A deposit on a pre-con property is usually 20%, but you pay it in installments over two, three or even four years. For example, at Artform in Mississauga, you pay 5% a year for four years. So let’s say you’re looking at a $600,000 unit. 20% of that is $120,000, which is a big number all at once - but you can break it down to a much more manageable $30,000 a year.
Related info: 7 things buyers should expect right now
And another benefit is that there’s no mortgage until you take possession and the occupancy period is over, which is usually years away. That gives you A LOT more time to save, to progress your career to where your earnings are higher, and for your investments to recover from the pandemic - all while taking advantage of 2020 pricing. (Because what you’ll be able to get in 2024 for the same amount won’t compare, guaranteed.) Pre-con is essentially a forced savings plan.
Plus, you may be buying into an area that’s being revitalized: one that’s not quite there yet, but will be when the building is finished. Think Liberty Village or King West 10 years ago...and what buying a pre-con unit back then would mean now.
Need a place for your kids to live in 5 years?
For parents who want to give their kids a leg up in an increasingly expensive housing market, pre-con is a smart option for the same reasons. The deposit structure is a lot more forgiving than a traditional down payment, so you can invest without depleting your savings to the same extent. And since most buildings take a while to get built, that means there’s plenty of time for the kids to grow up and be ready for their own place.
And if your condo is ready before your kids are, you can rent it out. While the current rental market isn’t commanding the kind of prices investors/landlords like to see, in 2-4 years, hopefully we will have weathered the COVID storm and rental rates will be back to normal. Which means you can probably cover your costs by bringing in tenants until your kids are ready to move.
This scenario also works if you own a house now, but you’re thinking of living in a condo when you retire: timed right, a pre-con purchase gets you a unit that’s ready when you are.
An interesting alternative for investors
Yes, you can probably pick up a resale condo in a good location for a decent price right now. But if your ability to buy depends on being able to get tenants right away at a rent that covers all your costs, you may want to consider another alternative. In this high-inventory, low-demand rental market, it won’t be easy to find renters, and if you do, you may not be able to charge enough rent.
Pre-con gets you an investment unit at today’s prices, but you don’t have to worry about carrying it in a rental market softened by COVID. In 2-4 years, hopefully, the pandemic will be ancient history, rentals will be back in demand, and you’ll have an investment that pays for itself.
Related info: your definitive guide to today’s housing market
2 tips for a successful pre-con purchase
Choose a reputable builder. You’ve probably heard the horror stories about projects getting cancelled several years in and buyers being left high and dry with a deposit that was enough when they first signed up, but doesn’t cut it in the current market. It happens. That’s why you need to do your research and no matter how cool a building sounds, stick to proven builders with great reps - the ones who are known for doing quality work and delivering on their promises.
Work with an agent with first access. Have you ever called to find out about an interesting building being advertised, only to be told all the best units are already gone? Developments often get marketed to the public only after well-connected buyers have snapped up the good units. Those are the buyers working with agents who have first access to pricing and incentives and can negotiate favourable terms. Getting in at the right time is everything, and only an agent with Platinum VIP access has that kind of pull.
“Any project I’m involved with has already been negotiated,” says Sean Miller, Sales Representative. “Buyers have first-access pricing and incentives such as the right to assign (which means they can transfer the purchase to someone else), capped development charges and the right to lease during occupancy. Flexibility is important: life can change, and you need an exit strategy plus the best return on your money.”
Working with an agent also offers some other benefits you won’t get by buying direct from the builder. For one, the builder’s first interest is selling you something: they aren’t going to tell you there’s a better development or lower pricing down the street. An agent will help you determine value and decide if a property makes sense for you as an end user or investor. Plus, they can help you pick a good layout based on floor plans: it can be hard to visualize what a space will look like from a drawing.
If you’re in a position to put down a deposit now, buying a pre-construction unit has its advantages. Want to learn more about this type of investment strategy? Contact a Condo Pro - they’ll be happy to tell you about the most exciting developments in the GTA right now, and how you can get first-access selection and pricing.