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Constructing a new condo or apartment building is hard work. It takes a lot of time, money and effort. That said, new condos are a great investment, especially in Canada. The real estate market is doing well despite the pandemic, meaning there are always plenty of people looking to rent or buy a condo. There’s a lot to consider when constructing new condominiums, though, especially when it comes to construction financing.
Condominium construction expenses often include building materials, contractor fees, property taxes and much more. Finding financing to cover all these expenses can be difficult, especially for new investors. Some lenders just aren’t willing to take the risk of giving a loan to a new investor. However, there are ways to convince a lender that you’re prepared to take on the challenge. Read on to learn about possible construction financing options as well as the benefits of investing in new condominiums.
Of course, before we dive in, if you would prefer a one-on-one discussion to go over your construction financing options, click the link below to book a free strategy call with our team at LendCity.
How much does building condos cost?
It’s no secret that building condominiums is an expensive venture. It’s hard to determine an exact estimate since every property is different. Differences in size and location can both greatly affect construction costs. With some complexes, it can cost under $100,000 per condo while others can go above $250,000 per condo. These costs don’t even consider the price of the land.
Since there are so many costs that go into building a condo, it’s important to plan a budget before diving in head-first. This budget should include the cost of land, materials, contractors and more. It’s usually best to work with a construction expert when planning a project’s budget. A construction expert can help develop a more accurate budget. With a smart budget in place, it’ll be much easier to find good financing options.
Consider a fixed-price contract
One of the best ways to get a lender on your side is by negotiating a contract first. Most people recommend negotiating a fixed-price contract with your construction contractor for many reasons. A fixed-price contract allows the developer to pay all costs up-front. This helps prevent the chance of unexpected costs halting construction down the line.
A fixed-price contract is an especially good option when the developer has a proper plan and budget in place. These contracts may often seem risky at first because of the high overhead prices. However, a fixed-price contract can actually save money in the long run.
Fixed-price contracts are often simpler and safer than most other types of construction contracts. They also give contractors more freedom to do the job right. The only major issue with fixed-price contracts is that determining an accurate estimate is often difficult. That means a developer may end up paying more than necessary. This isn’t usually an issue when working with a reputable contractor, though.
Other contract options
While fixed-price contracts are usually the simplest, some people could benefit from using a different type of contract. Time and material contracts, for example, involve a construction company establishing their hourly or daily rate. This type of contract ensures that a construction contractor will get their agreed-upon wage while also being reimbursed for any materials. Time and material contracts are often flexible and easy to negotiate. They do, however, mean that a construction team could be less efficient since they’re getting paid by the hour.
Unit price contracts are another type often used for construction projects. As the name entails, this type of contract divides the price of construction based on units. The developer will pay per unit, which makes understanding the cost of everything easy. It’s sometimes hard to tell how many units it’ll take to finish a project, though. That means a developer may end up paying more than they expected.
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Other types of construction contracts include cost-plus contracts and guaranteed maximum price (GMP) contracts. While it’s usually best to go with a fixed-price contract, it never hurts to consider all options.
Securing a construction financing loan
One of the best, yet most difficult ways to get financing for condominiums is by securing a construction financing loan. Construction financing loans are often difficult to obtain because lenders will usually only give them out to investors with experience. Investors lacking in experience should consider building a strong team that includes a real estate broker, construction contractor and lawyer.
Oftentimes, investors purchase a piece of land to build on before trying to secure a construction loan. However, it’s possible to use the construction loan to purchase land.
New Construction Financing for Builders – A recommended lender
LendCity is a Mortgage Brokerage helping builders and developers across Canada turn their building desires from drawings into reality.
When dealing with LendCity they will listen and understand your needs, then shop all the lenders that would support your potential build, securing the best rates, lowest fees and most favorable terms with the least amount of money in the project.
How to contact LendCity for your construction financing;
- Email Mike Peters at firstname.lastname@example.org
- Call the office at 1-519-960-0370
- Visit LendCity online at Lendcity.ca
- Click the link below for a free strategy call.
Is it a good idea to invest in new condos?
There’s a lot that goes into building new condominiums. It costs a lot of money and could take a while for construction to finish. That means having to wait a long time to see a return on investments. However, more and more people are opting to live in condos and apartments as opposed to single-family homes. There’s always a market for new condos, especially in larger cities. If you build your condominiums in a good area where many people want to live, you’re sure to see large profits.
Finding the right space
Finding the perfect area for new condominiums is usually a good place to start. When looking for the right location it’s important to consider nearby amenities, including schools, shopping areas and nightlife options. Investors should also check the area’s crime statistics and growth over the last few years before making a decision. This will help avoid building condominiums in an area that will soon lose popularity.
Even if when getting the right amount of financing, it’s important to plan for any possibility. That means saving some liquid assets and always staying under budget. This will help ensure that there’s some money leftover if things go south.
As you can see, there’s a lot that goes into building and financing new condominiums. That’s why it’s important to do your research and work with a team of experts. Once you’ve found the perfect piece of property, it’s good to draw up a contract with an experienced construction contractor. Having a good contract on hand will help ensure a construction loan.