Is pre-con the right move for first-time buyers?

Is pre-con the right move for first-time buyers?

Whether you’re looking to buy your first home or moving up to a new place, pre-construction can be a great option – but it has its upsides and its downsides. Whether it’s right for you really depends on your goals, your finances, and your timeline. 

The cons of pre-con

CON: It’s often pricier than buying resale

This is the biggest issue for many buyers: you’ll generally pay a lot more per square foot in a new build than you would if you were buying a resale property. But there’s a reason for that: developers' future-price. They anticipate what it will be worth in 2-4 years when it’s completed, not what it would be worth today. 

CON: You have to be pre-approved right off the bat

It used to be that you didn’t have to get pre-approved for a pre-con until closing. But now developers generally want a pre-approval letter from a Big 6 bank right from the beginning. They’re worried that people won’t be able to close – especially with the economic and interest rate environment we’re in right now. 

CON: Pre-con condos are on the smaller side

In new builds, you’ll typically get units with less square footage than what was being built even 5 years ago. Developers are building smaller units because they want to squeeze the highest possible number into the building – and maximize their profits. But there is one positive to this: they’re putting in nicer finishes and amenities to make up for the smaller unit sizes. 

Read more: Resale or pre-construction? 

CON: You have to put 20% down – in most cases

Minimum down payments for first-time resale buyers are around 5-10%, depending on the price of the property (although all properties over $1M have to have 20% down). But pre-con requires a 20% down payment in the majority of cases, no matter how much the unit costs. This has to do with how new builds are funded – it’s not something you can change.

The pre-con pros

PRO: You have more time to save 

Because of how payments are structured, you have a longer period of time to get your deposit and down payment together. The 20% is usually broken up into 3 or 4 payments, staggered over time. 

Your initial payment happens within 10 days of purchase and is often around 5%. After that, every developer is different on how they space out the rest of the payments, but there is time (often a lot of time) between each one. So if you've managed to save, say, 15% but you need some extra time to get to 20%, you have a window to build it up. That flexibility is a big plus for a lot of people. 

PRO: There’s less competition in a hot market

Unlike resale, where you can have dozens of interested buyers bidding on one property, pre-con buyers don’t face that kind of frenzy. Of course, there is competition in the sense that there are a limited number of units. But in new builds, there are no bidding wars. The price is the price: you just have to get there and choose your unit before someone else does. 

The earlier you get into a development, the more choice you’ll have. This is why it’s important to work with an agent who has early access. If you buy directly from the developer after a project has already launched, you’ll be left with whatever is still available after clients with well-connected agents have gotten their first picks – usually the best units.

PRO: You can choose your own finishes

With a resale home, you get what you get. If you want to customize anything, you’ll have to do it yourself. But with pre-con, you can put your personal stamp on everything: you pick your floors, paint colours, countertops, cabinetry. That’s pretty attractive to buyers looking for a specific aesthetic.  

PRO: Your property appreciates while you wait

Depending on how long it takes for the home to be constructed, you can actually see a lot of appreciation (and build some serious equity) before it’s even finished. In the  2 or 3 or 4 years from the time you initially sign to when you close, the property value could go up by 5-10% a year. So by the time you actually take possession, it will likely be worth more than you paid. 

That’s provided the market stays on an upward trajectory, of course: as we’ve seen in the last year or so, dips happen, so short-term appreciation isn’t guaranteed. 

Want to talk pre-con? 

If you’re interested in buying a pre-construction home, talk to a Property.ca agent – we have Platinum VIP access to many GTA developments, and would be happy to work with you to land a property you love.

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