Top 5 Things to Know Before Buying Pre-Con Condos
1. Always buy from a reputable builder
In real estate you always hear the term “location, location, location”. But, there are tons of other important things to know before buying pre-con condos. And while location is obviously an incredible component of making a great investment, not far behind that is putting your trust (and money) in the group that will build the actual product.
How do I know who is and who isn’t a reputable builder?
A real estate agent that works in pre-construction condos will help you determine that, but you should still do research on your own. You can research past projects and look into current and future projects as well.
Does the builder normally build large towers and are now dabbling in a townhouse development or vice versa?
For my money, if I’m investing in a project, I want to see lots of previous success in that type of build. I also place a lot of importance in:
- the number of construction delays
- short occupancy periods
- incentive programs
- and financing options
If the builder can tick off all of these boxes then that’s a great first step to purchasing in that project.
2. Make sure you understand what makes a bad floor plan
Rather than talk about what makes a great floorplan, let’s talk about what things to AVOID in a floorplan.
The main things, in my opinion, to avoid include:
- Wasted space (long hallways/foyers)
- Interior bedrooms (bedrooms with no window)
- Long, narrow suites (ties into wasted space)
- Sharing bedroom walls (in a 2+ bedroom unit)
- Having the only bathroom located inside master bedroom
- Extremely small den spaces
- Relying on built-in shelves instead of cabinetry
- Unit located right next to the elevator or garbage room
- Relying on a kitchen island for your cooking space
- Sliders for a bedroom – get a real door!
GOOD FLOORPLAN!
BAD...
3. Always have a Plan B (assignment clause)
When you purchase a unit, you’re normally putting 15%-20% down in the first 12 or 18 months, however large condo buildings can take at least 3-5 years to be built. What happens if you suddenly need that money for other reasons?
You must have a Plan B which is the assignment clause.
An assignment clause allows you to “assign” your purchase to another buyer before your unit/the building is complete. This can often times be easier said than done, however many people have successfully assigned their purchase to another buyer, received their deposit back, and in some cases even made a profit on the unit.
However, this strategy was used primarily in the early boom of pre-construction condos by savvy investors. Nowadays it’s used mostly for emergencies as most investors will now close on the unit, rent it out for a few years and then sell.
One important thing to look at in a pre-construction agreement now is the availability of an assignment clause and how it’s structured. In some cases there is a fee associated with it (which can range from $3000-$10,000) and/or the builder will only allow assignments once they have reached a certain percentage of units sold (typically very high at around 90%-95%). Some other cases say that the assignment can only be done to a family member.
Either way it’s extremely important to know what kind of assignment will be available to you before purchasing a unit.
4. Understand closing costs (cap unknown costs)
You’re going to encounter a lot of price increases on your way to purchasing a pre-construction unit – keep that in mind. From floor premiums, to finish upgrades, to exposure premiums all the way through closing costs…you must keep an eye out for it all because it will quickly add up.
The most important in my mind is really understanding your closing costs and getting as much information as you can on unknown costs. Let’s look at two examples below:
Known Costs
Everything seems pretty standard here, right?
But on further inspection you see that they’re going to charge you $300 to hold YOUR money until completion.
Also, they’re going to charge $200 for a mortgage discharge?
And the last points leads to the list of unknown fees you are agreeing to. Let’s check out what that includes…
Unknown Costs
Woah, that’s a long list of expenses!
Most of these are standard, but wouldn’t you like to get an idea of what they may cost in the future?
This is why it’s so important to budget for closing costs on top of your purchase because it’s not an insignificant amount.
5. Due diligence if paying a premium for a view
Are you paying a premium to get that view of the city skyline? How about that view of the lake?
Do you know that they’re planning to build another tower in a couple of years and someone’s bedroom will now become your entire view?
You MUST, MUST, MUST do your due diligence before you pay a premium for a view as it can a serious impact on your lifestyle and return on your investment.
If you have questions about purchasing a pre-construction condo unit, please contact me. As a real estate sales representative with extensive experience helping buyers pre-construction units around the GTA, I can help sort out what to look for and what pitfalls to avoid when purchasing for yourself or as investor.
