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 agent – we have Platinum VIP access to many GTA developments, and would be happy to work with you to land a property you love.

About Marc Ronné

Marc is an  experienced real estate agent who always goes the extra mile for his clients. He has been a Inc. Top Producer multiple times, and specializes in Burlington, Oakville, and other parts of the west GTA.

He’s also the owner and manager of the Inc.’s West GTA branch, leading a busy team that focuses on some of the most popular areas in the city.

When he’s not busy working hard to find the perfect family home or condo for his clients, Marc is most likely spending time with his family, but you can also find him playing golf (he's got a slight obsession…) or up in cottage country.

Join over 71,000 subscribers and get market news, insights & expert advice delivered straight to your inbox