Table of Contents - Pre-Construction Condo Investing with Mitch Parker
Dave Debeau [00:00:08] Everyone, Dave Debeau with another episode of the Property Profits Real Estate podcast today, zooming in all the way from the GTA, you've got Mitch Parker and Mitch is a very, very experienced, not only real estate investor, but a marketer and a sales person of high value properties. So he's going to bring a lot to the conversation. We're talking about preconstruction condos. That's something I'm interested in because I've got zero experience with that niche. So why don't we first of all, welcome. Glad to have you on on the podcast. And first of all, you don't mind, Mitch, why don't you explain to me exactly what is the whole preconstruction condo thing? How does it work? Pretend I don't I've never heard of it before. What is this thing? I'm from the sticks, sir.
Mitch Parker [00:01:06] First of all, thank you for an amazing introduction. I think I'm going to get you to follow me around everywhere and you can just do that intro to everybody. So basically, I'm the vice president of a company called Persch Kandos. And what we do is we do the sales and marketing for real estate developers. So essentially they bring us in. We put all the marketing programs together, and then we actually run the launch out to all the brokers and agents and essentially buyers to sell out their buildings for them. So to touch base on what exactly preconstruction is, it's basically a lot of investors when they're looking at buying a property, they're actually walking physically through our property. They're looking at it, seeing the condition, whereas preconstruction, you're essentially buying directly off plan right from the builder. And so the main advantage of it for from an investment standpoint is its first access. You're getting a project that or a property that's brand new, never been lived in. So there's literally zero maintenance, zero repairs that need to be done. And because we're catering typically to a condo and a town hall market, the general maintenance and time required to put into it is pretty minimal compared to, you know, when I first got into the business, it was through student housing, which is like the complete opposite end, where you're still hands on where this stuff is. You kind of buy it. You put a tenant in. You can always attract a great tenant if you're buying smart and you know, and it's a pretty easy process.
Dave Debeau [00:02:33] Yeah, that makes sense. So you've been investing, I think, since 2006, is that right?
Mitch Parker [00:02:38] Yeah, I think that's yeah, it's been a while now,
Dave Debeau [00:02:40] but yeah, that's that's a fair chunk of time. So you start off with student housing then. How did you get into this high falutin marketing business for for condos?
Mitch Parker [00:02:51] Well, I graduated with a business degree and a specialization in finance, and so I understood numbers really well. And my dad was always an entrepreneur and I was always helping him with his business. And while I was going to school and while I was and after I graduated waiting for my career, quote unquote, to come out, I was doing renovations and construction. I always enjoyed doing it. And so basically I saw the dots connect really well where I had all these skills. And so it started to make sense. All the TV shows at the time were hyping flip this flip that make one hundred thousand dollars doing that and people with much less experience. And so I went to my dad and who was actually my first joint venture partner, and I said, hey, look, I can run the numbers, I can renovate and do the construction and maintenance. All of that. Just put up the money and hold the mortgage and we'll go from there. And so we ended up looking for a property. We found a student rental, and it made sense at a certain point to get my real estate license or a access to the MLS and then be just you learn so much more about the business that way when you're in it. And that's the only way that you can learn is by diving right in and sort of gaining as much experience as possible. And so one thing led to another. And as you buy more property, and I'm sure you're familiar with this and you can relate, but, you know, people start asking you, how are you doing it? How have you done it? And so naturally, it just became more of like getting a license for myself to helping other people do it. And then I enjoy educating people and I love helping investors get to where they want to go to. And so naturally it's progressed from there. So I originally I was selling homes, I was selling condos. And then I love business. I love the scalability of a business. So selling buildings allows me to do that where you can come in, you know, and in some days we're selling like a hundred and twenty hundred and fifty condos in one day.
Dave Debeau [00:04:40] Well yeah, yeah, yeah. That's exciting. That's scaling things up. All right. So I've, I'm familiar with some folks, especially in Toronto and Vancouver, who have made some pretty good money basically getting in on. Preconstruction, condo deals, and then selling their interest in that for a quick flip for a fairly, fairly significant property and profit even before the damn thing's built. Tell us a little bit about how that works and how you see that as an investment strategy.
Mitch Parker [00:05:16] Sure. So so what you're referring to is called assigning a property. So basically, when you're buying a preconstruction condo, you're signing an agreement of purchasing sale, which essentially allows you to close on that property when it's complete. Now, one of the options and it's become popular with investors over the years is before you actually take a mortgage and get the keys to the property, you can assign that contract. So I originally paid four hundred thousand dollars for a condo. Two years later, it's worth five hundred thousand. You're interested in purchasing a condo? I can sell the right to that agreement of purchase and sale to you for five hundred thousand. And then I would make that one hundred thousand dollars spread on it. Now what I always caution investors to do is, like you said, you always hear people that have made like fifty sixty one hundred two hundred thousand dollars doing this. And that's kind of the ideal scenario. But because we're working in timelines that are three, four or five years out, it's just too unpredictable to solely rely on that strategy. So what I always tell clients is, look, if you can assign it down the road and make a fortune and that's what you want to do, that's awesome. But you have to have that plan B where you're going to close the property, put a tenant in and sort of ride it out until the values are stabilized. And, you know, at the end of the day, that's really how you build the wealth, is by keeping the properties, paying down the mortgage or having a tenant pay down the mortgage. And I think you thank yourself at the end of the day.
Dave Debeau [00:06:46] It makes sense of for those of us who aren't familiar with the condo market, why don't you kind of just briefly walk us through what is the time frame like? How long does it really, really take on average to get one of these projects from from inception to ready to go to livable? Yeah.
Mitch Parker [00:07:06] So by the time a client or a potential investor sees a condo for sale, there's probably already at least three years to four years into that from a development standpoint. So that's when they buy the land that they have to change the zoning work on the site plan, do the drawing, put the marketing program together and do all that. So like we have a project coming up now that it's been in the works for like three years with our company. And so we're finally seeing the fruition. But in general, if you're building in a midsize building, still somewhere between twenty five thirty five stories from the time you purchased it to the time that you'll get the keys could be three to four years.
Dave Debeau [00:07:48] And how does it typically work from the buyer's standpoint? So let's say I want to you guys do the marketing for this. I find out about it. I go see the open house. Well, yeah, go go see an open house. However that works or sale center.
Mitch Parker [00:08:01] You generally walk into a sale center
Dave Debeau [00:08:04] and then I say, OK, I'm interested. So how much am I usually putting down as a deposit for something like that?
Mitch Parker [00:08:10] Right. And that's a great question. You know, they vary throughout. But what you can standardize generally across the industry is you're going to have 20 percent down, especially because a lot of these are going to be investment properties. So it's going to be the standard 20. The advantage is you're not putting it all down at one time. So you are generally going to put five thousand when you sign the deal. And then in Ontario, you have what's called a 10 day rescission period. So by law, you actually have 10 days to think about it, think about your purchase. And if you want to proceed with the purchase, then you don't have to do anything. And if you want to cancel the deal, you have to find a neutral release. But you get the deposit back and you sort of walk away. It was a rule that was put in place when the condo market was absolute insanity and people were literally fighting over condos. And so the government stepped in. They said, look, this is crazy. I mean, you can't walk and buy three condos and have no recourse. So they implemented this 10 day cooling off period, which I think is great. It's great for everybody allows you to take a step back and make sure that it makes sense for you. But then so a typical deposit structure would be like five thousand on signing balance to five percent in 30 days. And then your next five percent might come six months down the road and then you might have another five a year, year and a half down the road. So staggered out pretty well, which is one of the nice advantages of doing a preconstruction.
Dave Debeau [00:09:30] Yes. OK, so so over typically over what complete time frame are you paying in your your twenty percent down.
Mitch Parker [00:09:38] So, so to give you an idea of the building that we're launching now, you're going to have five percent in thirty days and then going to another five percent in six months, then you're gonna have another two and a half percent in the year, two and a half percent in the year and a half. And then your last five is an occupancy when you actually get the keys. So it adds up to twenty percent, but. That will be staggered over. Call it the maid, the majority of it over a year and a half.
Dave Debeau [00:10:01] OK, perfect. And then most people are just getting typical bank financing at that point for the other 80 percent, is that correct?
Mitch Parker [00:10:08] Correct, Exactly. And some people put up a little bit more. Some people, you know, if you can get a loan to cover part of those deposits, you can do that as well. It's really up to the purchaser what they can do.
Dave Debeau [00:10:18] Yeah. All right. So it sounds like you've been working in the industry for quite a while. And just out of just out of curiosity, like huge big picture perspective, how does this work from like the developer's standpoint? Like, you know, it's this three years of three or four years of work before you even put a shovel in the dirt kind of thing. It sounds like. How does that all work? And typically, you know, a building like you're talking about there. What does that succored cost to put together? And just generally, what kind of what kind of profits are the developers making at the end of the day?
Mitch Parker [00:10:57] Yeah, so everybody has this connotation that, like builders are just swimming in money, like they're diving into this pit with like hundred dollar bills, and it's changed a lot over the last I would say, like five to 10 years. Construction costs have really gone up. Development fees from the city have really gone up, and that's squeezed a lot of the profit margins. I was looking at a stat just recently and it was something like development fees from the city make up. I believe this. That was like twenty eight percent of the actual cost of your condo. So, you know, when people talk about this, especially in Toronto and the GTA, lack of affordability and you're looking for some solutions, I mean, I would look to that right away and I'd say, like, how could we reduce that down to even 20 percent and bring prices down a little bit and help the the buyer get into the market? And from from a developer, you really have to have this vision. You have to be able to look at a neighborhood and say, where is it now and where is it going to be in five or six years? And you're you're taking a risk. And these guys are taking big risks. I mean, they're putting up their own capital. They're investing their time into it. You're into you're into hundreds of millions of dollars with these things. And so, you know, do they get paid? Well, for sure. But I would say it's a direct correlation of the incredible risk that they take as well.
Dave Debeau [00:12:16] Yeah, that makes sense. Fascinating stuff. So what are some of I mean, obviously, you're a big proponent of this. You've got to sell these things. What what are what are the pros? You talked about the pros, and it makes a lot of sense to get a brand new. Get a brand new unit, whether you're going to live in it, you're going to rent it, you got zero maintenance issues to think about. The condo associate, that's your condo fees. Take care of all the maintenance and all that kind of stuff. You've got a year and a half, two years to pay in your deposit while the thing's getting built. It could could go up in value. Fifty one hundred thousand dollars between the time you sign on the dotted line and the time you actually take possession. So those are all a lot of great things. What are some of the the potential pitfalls if you're not in a good project?
Mitch Parker [00:13:02] So I would say the major one is and you always want to be working with a developer that has done it before and has built that kind of product before. You know, a lot of headlines have come out about projects that are not going ahead or not getting built. And I think that's probably the biggest risk is typically buyers are protected. So your money that you put in the deposit goes into a lawyer's trust account is never held directly by the actual builder as long as it's being done legally. And so that's a major protectant. But, you know, you don't want to put deposits in wait for four years and then just get your deposit back.
Dave Debeau [00:13:43] Plus, there might be litigation. There might be a big hassle trying to get your money out.
Mitch Parker [00:13:47] Exactly. So that's one of the biggest risks I think are pretty protective. But again, you're losing that time. And at the end of the day, that's really why we're doing all this stuff right. We're trying to buy our time back. I say the other thing is some people like buying houses because they ultimately have to control what they can do with the property, what they can do with the lawn and the outside of the house, and this and that with condos. I mean, you own a box in what is one of many. So you're a little bit restricted in that sense. So I think condos have to be your style and it has to be what you want to invest in. But it comes down to personal preference at the end of the day.
Dave Debeau [00:14:23] Makes sense. Perfect. All right. Well, time definitely flies when we're having fun here. So people want to find out more about you and what you're up to. What would you have them do?
Mitch Parker [00:14:34] Follow me on Instagram. If Mitch Parker are you like for real estate or just add me on LinkedIn? I would say the other thing is I love helping people and answering questions and chatting real estate investment. So definitely if you're watching or listening, like, don't be shy, reach out to me, let's chat. Let's connect. I'm a firm believer that your network is really everything and who I know can only help you and get you where you want to go faster. And likewise, I mean, if we connect and you end up being great connections, there's benefit in it for me as well.
Dave Debeau [00:15:04] Awesome. Very good. Mitch, thanks very much for sharing a little bit of knowledge and experience around KONGOS.
Mitch Parker [00:15:11] Thanks, Dave. I appreciate you having me. It's been great.
Dave Debeau [00:15:13] All right. All right, everybody, thanks a lot for tuning in. We'll talk to you on the next episode of a. Well, hey there, thanks for tuning into the property profits podcast, if you like this episode. That's great. Please go ahead and subscribe on iTunes. Give us a good review. That would be awesome. I appreciate that. And if you're looking to attract investors and raise capital for your deals, that may invite you to get a complimentary copy of my newest book right back there. There it is, the money partner formula. You got a PDF version at Investor Attraction book, dot com again, investor attraction book, dot com ticker.