Pre-Construction vs. Resale

Which condominium do you buy?

This is a topic that is of much interest to local buys and one that really can’t be answered in simple terms. We need to first determine the purpose of the purchase –investment or family home?

As an investment we then need to determine the long-term strategy. Are you renovating and flipping? Thinking about renting as an additional income? Or are you building a portfolio of real estate properties to take advantage of future markets? While there is no right or wrong answer, this information is crucial to determining the strategy for you.

PRE CONSTRUCTION

The good

1) Pre-Construction heavily leverages your money - by simply putting down 15%-20% of the purchase price, you can grow your investment based on the entire value of the condominium. Essentially, you are getting an interest free loan of 80%-85% of the purchase price from the builder for the duration of construction.

2) New, new, new – no one has lived in your condominium before. You also get the latest amenities, design elements and finishes.

3) Assignment - the ability to resell your unit before the registration is complete is a huge bonus for many investors.

4) Value – what you get vs. what it costs. It is important to consider that you might be purchasing a condo that may not close until 2015 or later at 2012 prices with 2012 dollars. This provides incredible value when compared to other investment options.

The bad:

1) Non-liquid asset – while you can ‘assign’ your unit, most successful assignments don’t take place until the end of the construction cycle. So, if your condo is not set to be completed for another 2-3 years, you might have trouble getting your money out if you need to do so.

2) Risk – no one can really predict what the market will bear in 3 to 5 years so there is no guarantee that your investment will grow.

3) Wrong way to purchase – if you do not use a real estate agent who specializes in pre-construction condos, you are at risk. Condo sales staff work for the developer and have HIS best interest at heart, not yours.  A real estate professional experienced in pre-construction sales can save you thousands of dollars.

RESALE

The good:

1) Its real – when buying pre-construction you are purchasing the rights to a condo in the future. Buying a resale unit allows you to see and feel the unit as it currently stands.

2) Market value – know what your worth is now. Nothing to guestimate here.

3) Liquid investment - it’s much easier to sell an existing condominium than one that has not yet been built. This is probably the main reason investors choose resale over pre-construction.

The bad:

1) Maintenance fees - older buildings require more maintenance and lately these fees have been on the rise. Investors need to keep this in the budget when planning rental rates, etc.

2) No leverage - unlike pre-construction where you only need to put down a fraction of the cost, here you will be paying the full 100% of the purchase price or taking out a mortgage to purchase the condominium.  You now have interest and principal payments that take place immediately.  Pre-construction investments offer a much more leveraged form of investing.

Again, there is no RIGHT choice, just an informed choice. So contact me and let me be your guide whichever way you choose.