With the country experiencing a housing shortage, it can be a difficult time for those looking to purchase a home. The average price of a home has skyrocketed in the last ten years, and Canadians are concerned about their ability to buy a home one day. Real estate, on the other hand, can and has always been one of the safest investments you can make.
When looking to buy a condominium, every buyer and investor must make the difficult decision between a pre-construction condo and a resale condo. Although we cannot advise you on which option to select, we can provide you with information on the advantages and disadvantages of each. That way, when the time comes to buy a condo, you’ll be prepared, you will be well prepared and confident in your final decision.
Purchasing a condo is a fantastic investment opportunity for both novice and experienced investors. There are numerous benefits to purchasing a condo, and you can be confident that real estate trends will always be positive. The real estate market is volatile; it is expected to rise and fall, and this is where you have complete control. When the market is down, which it will eventually be, this is the time to invest or hold onto your property; when the market is at its peak, you can sell and make a high return on your investment (ROI). The best thing about investing in real estate is that it is tangible; you can hold it, and you have control of when to buy or sell.
You may ask yourself: What is the difference between pre-construction and resale?
There is no one answer, but we have compiled and broken down the key differences between the two.
- Difference by Definition
- Closing Dates
- Renting Options
- Location Matters
Difference by Definition
Understanding the differences between pre-construction and resale is critical when deciding between the two options.
Pre-construction means that the condo has not yet been built; it is not a tangible asset that can be lived in or rented right away. Pre-construction also means you’re the first buyer, getting the best deal and making the most money. When you invest in pre-construction, you are investing for the future, which means you are anticipating future appreciation, rental rates, growth, and other factors. Furthermore, when you buy pre-construction, you are purchasing the unit from the developer. Purchasing new pre-construction condos allows investors to avoid the time-consuming process of visiting individual resale condos and making back-and-forth offers.
A resale condo, on the other hand, is purchased directly from the owner. This unit has already been occupied, and the original owner, who purchased it during the pre-construction phase, has already realised the greatest return on their investment. When purchasing a resale condo, you must use the services of a licenced real estate agent and have a professional property inspection performed. You can also expect to negotiate or participate in bidding wars with resale.
When comparing the two, new versus used for anything is always more valuable because people prefer brand new goods over used goods. So, when you purchase pre-construction, you will not only receive a brand-new unit, but you are also purchasing at the lowest price while receiving higher rent and making the highest return on your investment.
The Closing Date
The Closing Date is the point in the buying process when you receive ownership and title to your new home. The closing dates remain the same whether you buy a pre-construction or resale condo; it’s just a matter of when.
When you buy a pre-construction condominium, your closing date is years away and is divided into two phases: interim occupancy and final closing. Because these phases take place several years after you sign your Agreement of Purchase and Sale, you have more time to save money and obtain a mortgage, which is required once you reach the Final Closing Phase.
When buying resale, you can have your Closing Date in as little as a few weeks and must pay the down payment right away. Not only that, but you must obtain your mortgage as soon as possible, which can be difficult for those who are not financially prepared.
Investors who need more time to save for a down payment and a mortgage may prefer pre-construction over resale. As an additional incentive, developers may offer an extended deposit structure that allows the down payment to be paid over several years. When purchasing a pre-construction condo unit, you will typically put down 15 percent within 15 to 18 months of signing the Agreement of Purchase and Sale and the remaining 5 percent upon occupancy, giving you more time to prepare financially. However, with extended deposit structures, developers will extend your payment schedule to allow you to pay off your deposit within 18 to 24 months after signing the agreement. This gives you more time to save money and slowly pay off your deposit.
As with any investment, there are risks – in pre-con, there may be delays or cancellations, resulting in lost time. The good news is that you can avoid these adversaries by conducting thorough research to find a reputable developer. Furthermore, by working with a Platinum Agent who specialises in pre-construction, you can be confident that they will assist you in locating the right unit by a reputable developer.
For many homebuyers, the goal of investing in real estate is to generate a passive income. However, the ability to rent your condo differs between pre-construction and resale.
As previously stated, you will not be able to rent your property until you reach the Interim Occupancy phase. Prior to that, you cannot rent your property because it is neither a tangible asset nor deemed safe to live in by the municipality. However, once you reach Interim Occupancy, you can lease your property before Final Closing as long as the developer gives permission and you have the “Right to Lease During Occupancy” clause in your Agreement of Purchase and Sale.
Pre-construction means paying today’s purchase market price but repaying it with future rental market prices. Rental rates have risen at an average annual rate of 4% over the last ten years, and we expect this trend to continue. Pre-construction properties necessitate estimating your rental income based on price forecasts several years in the future. The advantage is that your condo will continue to appreciate during this time until construction is completed.
With resale, the condo can be available to the investor within a few months of signing the Purchase and Sale Agreement. In contrast to pre-construction, those who purchase resale properties can base their prices on current rental rates in their market. This option benefits investors prepared to start renting and making a passive income immediately.
The location of your property is critical in every way. Whether you are considering pre-construction or resale, researching the location of your property is critical. But, once again, the two options are vastly different.
Buying a pre-construction condo necessitates much more research. New construction is typically located in underdeveloped areas or in developed areas that will continue to grow over time. Choosing a location in a developing neighbourhood allows you to purchase your condo at a lower cost, with significant appreciation as the community grows. The goal is to invest in a growing neighbourhood in terms of housing, employment, and population.
When you resell, you give up many years in which your property’s value could increase. The reason for this is that the neighbourhood in which you are investing is already established, and there will be no significant change in growth over the next few years. It does, however, allow you to select a desirable neighbourhood.
When deciding between a pre-construction condo and a resale, keep in mind the additional costs associated with each.
Pre-construction condos may save you money on maintenance fees, which can be higher in resale condos due to older amenities and common elements. Pre-construction, on the other hand, requires you to pay final closing costs, which can include land transfer tax, property tax, and levies such as development charges, park levies, and the remainder of your down payment.
Closing costs for resale condos are always lower than pre-construction closing costs, but there are additional fees associated with managing older units. Furthermore, because of the repairs required throughout the ageing building, resale units have higher maintenance fees. As a result, resale condos do not appreciate as much as pre-construction units because people prefer new over used. Renters want modern finishes and the latest features and amenities, so you may end up paying more for repairs and renovations.
The Future is Bright for Investors
The federal and provincial governments believe that the real estate market will continue to rise. Although real estate used to be developed horizontally, Places to Grow Act initiatives focus on vertical development within the Greater Golden Horseshoe. This means that the emphasis has shifted from low-rise houses to mixed-use condominiums. In other words, condos are the way of the future. Furthermore, with the rise of immigration and population growth, as well as affordability issues, condominiums are better positioned to house the growing population in areas near transit and employment.
Investing in the pre-construction market puts you ahead of the game by allowing you to purchase a unit at the lowest possible rate while reaping the highest possible return on investment. Of course, it has risks, just like any other investment, but the rewards are what make it worthwhile to invest.
If you want to learn more about investing in a condo, Register with us today!