Should I Buy Pre-Construction? – Toronto Real Estate Investing

I have recently heard realtors and pundit speaking negatively about pre-construction in Toronto. The truth is that there are lots of ways to make money in real estate investing, and it really depends on your resources and preferences. There is no right or wrong, only what will work best for you.

In this video you will learn about the benefits and drawbacks of pre-construction versus resale and why you might prefer one over the other. Most importantly you will know how to take the next steps!

In this video I have a special guest! Milan Swanston, Broker and founder of Condo Savvy. I work with a team of professionals, experts in what they do. And when I have clients interested in pre-construction, I call Milan!

When you buy preconstruction, you are buying “the right to buy the property” upon completion and the benefits of buying preconstruction are: • You don’t have to deal with tenants to get the market appreciation
• If you have the down-payment but can’t qualify for the mortgage right now it is a way to participate in the market
• You can sell the property on assignment before you close, avoiding all the closing costs and HST payment but:
o You would have to pay capital gains
o You will have to pay HST on your deposit
• Typically, you would have to rent it for a year to get the full market value and get the HST back but you would have to pay the closing costs and developer charges
• If you can secure the property with very little down then you control a large asset with very little invested.

The benefits of buying resale are:
• Typically, you pay 20-30% less than preconstruction.
• You make a return on your investment while or if it appreciates (risk mitigation)
• Often the cash flow is negative but cash flow + mortgage paydown (called cash on cash return) is normally positive.
• You can buy a resale condo with less than 20% down if you or your family are going to live in it.

If you are looking at putting 20% down, resale will usually be the hands down winner in terms of return. But if you can get a 5% down deal, preconstruction could be a great option. But it depends on the property and your circumstances.

If you are looking at preconstruction you will need to work with a platinum agent to get the best pricing and he best terms with a reputable developer and a solid builder. Please send us an email and we can have a chat!

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Benjamin Brown

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