6 factors that make pre-construction condos a better investment than buying resale
People are always asking what’s a better investment: pre-construction condos or units on the resale market.
Resale condos have obvious appeal. They are available right now, right? There’s no waiting around for years like with a pre-construction unit, and most of the latter aren’t solid investments anyways.
Well, it’s more complicated than that. These six factors will demonstrate that.
Condos are commodities
In Toronto, condos are the future of housing as the city gets denser and denser. But they are also commodities, and like with other commodities—think of smart phones or other tech—consumers want the latest. Part of this stems from the fact that you can completely renovate a house, inside and out. The same is not true for condos. So demand-wise, pre-construction just makes sense.
The “arbitrage” approach
Pre-construction condos let buyers uniquely take advantage of local market developments. Virtually unheard of on Toronto’s resale market, it’s possible to attain below-market-value condos in the pre-construction segment. I call purchasing such units “UP investing.” That’s under market value/positive cash flow investing. An example of this is if you see a pre-construction unit in a neighbourhood for $900 per square foot where resale condos are going to $1,000.
To get your hands on a resale unit, you’ll want a 20-per-cent downpayment at the ready, but with pre-construction, you’ll have one or two years to come up with this amount. You might even get away with a 5-per-cent deposit. If you can shell out less than 20 per cent up front, you’re effectively reducing the price—you can put the money you’ve saved towards other investments.
Time is on your side
Because you don’t take possession of a pre-sale unit immediately, you have flexibility. You’re not a landlord, and you don’t have to worry about getting a mortgage yet. The mortgage will only kick in once the unit is move-in ready, a perk for the self-employed or those who expect to be earning more in the coming years. Qualify for a more favourable mortgage later.
Developers need you
Yes, you read that right. The industry forces shaping the city need pre-sale homebuyers for projects to get off the ground. With few exceptions, developers big and small will have to show that 70 per cent of the units at a given project have been sold to get it financed. An existing-home seller only needs to find one buyer—they can afford to hold out, whereas for a developer delays can be costly.
The insider advantage
A platinum broker like myself provides what I consider the “insider advantage.” The resale market is wide open. Anyone can browse a property on realtor.ca, for example. But only those with access to a platinum broker—there are only a couple hundred in the GTA—can find out about pre-construction units that aren’t yet known to the public, and that’s the insider advantage. These units typically have the best floorplans for the best prices—without bidding wars.