Exploring the Benefits of Investing in Pre-Construction Condos

  • 9 months ago
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Have you ever come across a floor plan or a detailed layout of a pre-construction condo? These are condos that are either yet to be built or are currently in the construction phase. Pre-construction condos have become a compelling option for real estate investors, particularly for those seeking a second property or looking to enter the rental market.

One key advantage of pre-construction condos is the flexibility they offer in terms of deposit payments. Unlike traditional purchases, the deposit is not typically due all at once. Additionally, these properties tend to be more budget-friendly compared to resale condos. Even though you’re committing to a purchase based on a floor plan, you have the unique opportunity to customize certain aspects of your condo, such as cabinetry and flooring, making it truly your own.

Here are some essential tips for making a successful pre-construction condo investment:

  1. Prioritize the Builder, Not Just the Building Investing in a pre-construction condo does carry some inherent risks, such as project delays or cancellations. However, these risks are significantly reduced when you choose a reputable builder. Investigate the builder’s track record and assess the performance of their past projects. A builder with a strong history of on-time delivery and stable maintenance fees is a positive sign that your pre-construction condo will be in good hands.
  2. Understand the Cooling-Off Period Most pre-construction sales contracts include a 10-day cooling-off period, and in certain jurisdictions like Ontario, this period is mandated by law. This grace period provides you with the time needed to carefully consider your purchase. During this time, it’s advisable to have a lawyer review the sales contract, scrutinize closing costs, and examine any fine print. Ensure your financing is in order, as your mortgage pre-approval letter will be requested within 30 to 60 days. Use this time to explore other available options, comparing prices and incentives to ensure you’re making the right decision.
  3. Grasp the Deposit Structure While a 20% deposit is the norm for most real estate transactions, the deposit structure for pre-construction condos differs slightly. Deposits are typically divided over the course of a year, but the specifics can vary. A typical deposit schedule might look like this:
  • 5% due at signing (cashed after the cooling-off period)
  • 5% within 30 days
  • 5% within 60 or 90 days
  • 5% within 120/240/365 days, or upon occupancy

Some projects even offer incentives, such as providing 5% annually or $1,000 monthly for five years. This deposit structure allows investors to put down 20% of the purchase price while enjoying appreciation on 100% of the condo’s value during construction. Moreover, it alleviates concerns about taxes, maintenance, mortgage payments, insurance, or tenant-related issues, ultimately bolstering your returns.

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