Thinking Of Investing In Pre-Construction Condominiums? 5 Things You Should Know.

Dated: February 23 2021

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February 22, 2021

    Thinking Of Investing In Pre-Construction Condominiums?

 5 Things You Should Know.

Have you ever thought about investing in Real Estate but were not interested in renovation or being a landlord? There are only a small handful of ways to get around wielding a hammer or tracking your tenants down for rent. You can invest in syndicated mortgages, private mortgages, real estate based mutual funds, or you can buy a condo before it is even built.

The basis of this strategy is simple, buy when the builder is looking to sell units at today’s market prices, and sell in 2-5 years when the finished product is completed. Often, you realize a profit over the 2-to-7-year period the builder requires to complete the building. There are a few tips and tricks you can use to add some extra protections and options to your investment.

1) Negotiate An Assignment Contract Clause. 

Most of the time the developer will have the option for you to assign your contract prior to you closing the sale. There are usually some parameters tied to this option to protect the developer and the financing required to build the condominium. They include a minimum percentage of sold units before you can assign a contract, and almost always the option requires consent from the developer or builder before you can offer your unfinished until for sale. There may be an assignment fee involved that would be due to the developer upon and completed assignment sale. You are rarely able to advertise your assignment sale on MLS or social media channels. You will need to find a buyer through word of mouth of a real estate agent’s direct contacts. This can present obstacles and you should never go into a purchase of a condo thinking you can use this clause to get out of the contract before closing. Always be prepared to complete your purchase and resell the unit for profit after closing if required. This clause simply gives you the option to assign the sale if there is one.

2) Pay Attention To The Paperwork.

Review the Tarion timelines with your lawyer and be prepared for your deposit to be held in trust for the Tarion timeline not for the timeline the builder or developer tell you it will take to complete the project. Tarion is the consumer protection agency that regulates new builds in Ontario. Never buy anything that is not registered with Tarion. It is important to understand that a condominium type building has many variables during the build timeline and Tarion does acknowledge that the builders need time to complete the project. Tarion timeline will allow delays to a certain point. Once the builder has exhausted the delay process outlined in the Tarion schedule within your contract you can opt out of the purchase. Those timelines can be 3 to 7 years from the date of your contract. Have the mindset that the longer they take to build the better. The Real Estate market generally goes up over time, so it stands to reason the longer it takes the more $$$$ you will make.

3) Research Your Developer And Your Builder.

Know how many successful builds they have completed, what was the quality of those builds and were they completed in a reasonable time frame. Both a builder and a developer are only as good are their reputation. Allow for reasonable explanations for delays such as slower sales due to market conditions or COVID-19 delays. You do not want to discount a good build due to previous issues that are out of the developer and builders’ control. Take time to understand the nature of the relationship between the developer and the builder. Is it a partnership or did the developer hire the builder? Know who is responsible for what aspects of the build. The developer is usually the landowner, it is generally their job to find and acquire strategic properties to build on and they are usually who is on the other end of the negotiation table when you are signing a contract. The builder is usually responsible for all things related to site plans and approvals on behalf of the developer and they deal with the trades and finishes of the build. Every partnership and build are different, and it can be handy to know who is doing what when you have questions throughout the process. Many developers and builders use Real Estate agents or hired sales teams to field all the questions and often they can assist you with getting the answer you require.

4) Watch the Finishes

Be careful what you upgrade when you get the design phase. Upgrades can be costly and do not always make sense to complete through the builder. Always ask if you can have allowance for appliances and lighting and then find a good deal and buy it yourself. Sometimes they cannot accommodate this request for various reasons, but it never hurts to ask. Understand your standard finishes well and only consider upgrades like lighting, or appliances that will add value to the sale of the unit after. Remember you will likely not ever live in the unit. Your goal is to make a profit off the sale. You can lose your profit in your upgrades.

5) Talk to a Real Estate Agent

A Real Estate Agent knows the condo market in your area. Understand how many new projects are expected to be completed around the same time as the one you are looking at. Understand what makes the project special and what features of the project will make an easy resale upon completion with the other builds that are being completed on similar timelines. A knowledgeable real estate agent will be able to research and understand the market better so you can be more confident in your purchase.

Pre-sale condo purchasing can be very lucrative. You need to be educated in your local market and understand what you are buying to mitigate your risk. Ask questions and never settle for answers you do not understand. Get more than one opinion and speak to a professional who understands the 5 points I have discussed in this article. Know that not all real estate agents fully understand the condo world. Be sure to ask questions to know your agent is well versed in that.

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Janice Carter

When choosing the right real estate agent for you it is important to understand the agents background and how it translates to valuable service for you. Please see a quick review of my previous work a....

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