More and more, people are buying preconstruction condos in Toronto and surrounding areas. That is, they are buying a condo before it is built, as opposed to buying a resale condo that is already built. It’s a bit like going on a blind date when you buy preconstruction: Some things about it are great, some things are, well, less than great. Let’s look at both sides of the preconstruction coin.
Pros of preconstruction:
Because you are buying a condo that is not yet built, you have the ability to customize things such as finishes, paint, flooring, and appliances. This is a great way to not only get the details you want, but also to choose those that will make your unit desirable to potential buyers down the road.
Preconstruction condos almost always offer better value per square footage over resale units. If you are buying your condo as an investment property, preconstruction will give you a better return than resale.
You can save up for the purchase. Because you don’t have to pay the entire purchase price upfront, but rather a series of smaller payments, you can use the construction time to save up the money you’ll need to pay the balance when you take ownership. (Note, however, that your initial deposit will be higher than if you were to buy a resale unit, because the builders will use those monies to fund the construction).
You’ll get a brand-new home full of the most modern upgraded amenities right from the get-go.
Maintenance fees are usually lower in preconstruction buildings, because the buildings require less maintenance.
Cons of preconstruction:
You are buying a home sight unseen. It’s like taking a leap of faith.
Unlike a resale purchase, you’ll have to pay HST on the purchase of a preconstruction condo. However, you plan to live in the unit yourself, however, you may qualify for an HST rebate.
It’s really hard to plan. Although you will be given an estimated completion date for your condo, this is always an estimate and a builder can legally go over the estimated date, sometimes by as much as two years. There is also always a risk that a builder won’t sell enough units to be able to complete the construction on time – or at all.
It’s difficult to calculate market value for a preconstruction condo, since there are no previous sales in the same building to form the basis of the value. This also makes it difficult to calculate what your potential rental income will be.
Probably the biggest con is that it is a non-liquid investment that requires you to freeze up a large amount of capital in the form of the large down payment. You won’t be able to touch that cash during the construction phase (which can be several years) should you need it.
As with anything, there are both pros and cons of buying preconstruction versus resale. The right choice for you depends on your personal preferences, your budget, and your risk tolerance.