Should I Buy a Pre-Construction Condo?
Have you ever thought about purchasing a pre-construction condo? Wonder if it is a good investment?
Last week, I attended a sales office where I was pitched to purchase a new development at the heart of a booming city.
This beautiful 2 bed room condo on the 41st floor is conveniently located across the street of a developing subway train station which could take me to downtown Toronto in just 30 minutes!
I was so convinced that it was a great investment that I just signed the purchase agreement there on the spot!
Unfortunately, I backed out of the deal two days later because I came to the realization that this purchase was not as sweet as I had originally thought.
Here is why I rescinded my offer:
What you’ll learn
- The pros and cons to buying a pre-construction condo
- Things you will need to consider before making the purchase
- How to determine whether it will be a good investment
Getting Ahead of the Game
One of the main pushing factors for me was the idea of getting ahead of the game by purchasing the property cheap.
I was banking on appreciation.
In most cases, pre-construction condos will be the lowest price the unit will see. However, there is no sure way to guarantee that the property will appreciate.
Big risks come with big rewards right?
Not Knowing What to Expect
The biggest challenge to buying a pre-construction condo would be not knowing what to expect.
I couldn’t really tell how the inside or outside of my unit was like aside from the floor plans posted at the sales center.
There is only so much my imagination could take me. As someone who loves to imagine, more often than not, I would see things better than it really is.
Pay Attention to the Dates
One important thing to consider before pulling the trigger are the dates.
In my case, the condo would not be built until the year 2022. That is 5 years away from now!
There is no telling where my life would be in 5 years. I don’t even know whether I would still be in the country.
On top of that, the builder is legally allowed to delay occupancy until 2025! Assuming the worst case scenario, I would own that property in 8 years. Is it really worth it?
Consider the Hidden Fees
There are some hidden fees that will accompany pre-constructions condos.
For one, if the purpose of your purchase is for investment purposes, be prepared to pay HST on it.
Not to mention, you may also be billed from the city for any developments on city property. Most contracts will cap this amount but it could still end up quite costly.
As for the more obvious, parking is usually not advertised in the sales pitch until they know you are interested. At which point, they will casually drop in “oh, don’t forget parking. It is ONLY $30,000 more!”
Avoid Buying on the Spot
The sales people will do anything to get you to sign the dotted line before you leave the room.
They were telling me that this was the best investment I could make, the units were going fast and that this was a private event.
They dressed in thousand dollar suits, had fancy presentations and even the colors in the room made you feel good. I was so impressed that I signed the papers within 2 hours.
It wasn’t until I got home, had some time to think that I realized I was making a mistake.
I was so glad that I had the option to rescind the agreement within 10 business days.
The Purpose of the Purchase
Why are you purchasing the property?
For me, it was because I expect it to appreciate, the view was amazing and transit will be extremely convenient.
My sole purpose of purchase was to turn this unit into an investment property. Unfortunately, waiting 5 years for the unit to be built did not made it a good investment.
If I bought it for myself to live in, well…. that’s another story.
Does it Align with Your Financial Goals?
This purchase will require a 20% down payment of $80,000 within a year.
After doing some calculations, even if the property appreciates by $160,000(2 times the down) by the time it is built, that $80,000 will be stuck doing nothing for 5 years!
If you follow my blog, you already know that I plan to retire by that time. I am quite confident that I can turn $80,000 to more than $160,000 in 5 years.
To me, the purchase just did not align with my financial goals. That is why I had no choice but to rescind my purchase.
What do you think about pre-construction condos?
