Condo Pre-Sales: Are They Worth It?

Condo pre-sales have the following pros and cons when compared to other properties. Use your own judgement to decide if a condo pre-sale is right for you.

PROS:

1. They are brand new. Many people who are not familiar with home ownership prefer a new, clean looking condo over an old, detached home that requires maintenance. For investors, this also means that the condo is \”low-maintenance\” and about as passive as real estate investment properties come.
2. They comes with incentives. Incentives that you won\’t get with a typical home is fitness rooms, pools, rooftop patio, and sometimes shopping centers.
3. Smaller downpayment upon signing. Condo pre-sales typically require a smaller downpayment upon signing than a new-build. A new-build home or semi may require a 10% downpayment upon signing the APS, while a condo typically requires only 5% downpayment upon signing. This can provide more flexibility to use funds for something else. This allows your to lock-in your investment early on, often allowing you 2-4 years to get better situated so that you can setup financing.
4. They are easier to lock-in. There are mortgage brokers that will write a pre-approval for condo purchases, which is all that is required. Purchases of other homes however will require an approval, which is a more in-depth assessment of your finances. It is however, not recommended to lock-in something you can\’t afford. See Con #3.

CONS:

1. They come with risks. There is no shortage of horror stories with new condo buildings with issues that drag on for years, including water damage, unfinished areas (including pools, rooftop patios, lobbies, etc.). To mitigate these risks, always research the developer of the condo buildings and check the reviews on other buildings they have built.
2. They\’re more expensive. More expensive than what? They\’re more expensive than other newly-constructed condos or assignments on the market. So why do people buy them? See Pro #3. If you need to live or rent the condo now, then it\’s better to buy one that is available now. If you don\’t need the condo but are just looking for the appreciation and associated net worth increase, then the pre-sale may be right for you.
3. Financing can sometimes fall through. Many people have jumped onto the condo pre-sale train, determined to make a real estate investment, even if they can\’t afford to close. Locking in the condo pre-sale is relatively easy (see pro #3), but closing on the condo with a mortgage can require up to a 20% down payment total (including your initial down payments) if you don\’t intend to live in the property, plus closing costs. People who are not financially able to close on the property often sell the right to purchase the property to someone else. This is called a condo assignment. Currently, in Toronto, condo assignments are not considered an attractive real estate investing strategy. It is more recommended for investors to buy condo assignments and close on the property than it is for investors to sell their condo assignments. The reason is that there is more money to be made in closing on the property than there is selling the assignment. If this trend continues, condo assignments will continue to increase in supply and sellers will not be able to break even any more.