If you’re looking for your next real estate investment opportunity, you might consider new construction condos. Instead of looking for old, worn-out properties to fix and flip or rent out, you can get in at the development stage. Brand-new construction often commands higher rent and depending on the location, you might be able to resell it later for a much higher price. However, the buying process is different than what you’d experience when investing in preexisting homes.
Table of Contents - Should I Invest in a New Construction Condo?
- Pros and cons of investing in new construction condos
- What to know before you invest
- Should you invest in new construction condos?
- The Complete Guide to Buying a Pre-Construction Condo
Here’s what to consider before investing in a new construction condo.
Pros and cons of investing in new construction condos
Lower purchase price
Generally, investing in a new construction condo means you can make a lower initial investment, which allows you to maximize your return on the investment as soon as the property is ready to be sold. New construction condos are often less expensive before they’re fully built.
Builders might not negotiate
If you’re used to negotiating purchase prices, you might be surprised when you work with a builder. Typically, they do not negotiate the price, since they set it themselves. You can always try to get a better deal, but don’t bank on it.
Very low maintenance costs
The best part about new construction is that there will be very few maintenance costs at the outset. Unlike older homes, you’re less likely to see problems with the plumbing, wiring and other essential systems—and if you do, they’ll still be under warranty. The design will be brand-new and modern, which appeals to buyers, and you won’t need to repair or renovate before you can resell.
Tax incentives available
Investing in new construction allows you to deduct many costs from your capital gains taxes, including unit depreciation, property taxes and mortgage interest.
Local and provincial taxes may be high
Be aware of your city and province’s development fees or municipal levies. Cities often charge developers a per-unit price, since new developments change the population density. In turn, cities or municipalities have to bring in more money to support roads, parks, schools and other necessary infrastructure. If you didn’t cap your closing costs in your contract, the builder will pass those per-unit costs on to you.
New construction condos are usually pretty easy to find, especially in up-and-coming areas. As people are moving out of large cities like Toronto and Vancouver, the surrounding areas tend to build up. Developers are capitalizing on the opportunity, so you should be able to find plenty of investment opportunities. Compare this to foreclosures, short sales and other low-cost real estate investments—you’ll have an easier time finding new construction.
Developers usually pick up-and-coming neighbourhoods, whether they’re revitalizing the area or choosing a hot new location to build up. New construction often means new roads, parks, schools and other features that can make the neighbourhood appealing to buyers. Even if you can get a great deal on an older home, when the location isn’t attractive, you’ll have far less luck reselling or renting it out. However, keep in mind that your buyers might not want to live in partially-finished neighbourhoods—that probably won’t make or break your sale, but it’s worth considering as part of your holistic property analysis.
No property history is available
Since the property is brand new, it’s harder to complete a cash flow analysis. Until the completed property is appraised, you probably won’t be able to determine the property taxes. Ask the builder and your real estate agent about comparable properties, so you can get an idea of whether this investment will be profitable enough for your portfolio.
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What to know before you invest
Get to know the builder first
Your builder can make or break your investment, so make sure that you work with the most reputable builder you can find. You want a builder who has a good track record. Find out if they have managed to complete their projects in a timely manner, as well as their post-closing history. Determine whether their previous projects are still in good shape, and how they handle condo maintenance fees. Special assessments and big increases indicate an issue with either the developer or management. Look for overall trends to get a sense of what kind of investment you’re considering.
Work with a real estate agent
If this is your first time investing in new construction or condos, be sure to work with a real estate agent. They can help you analyze a purchase and contract before you commit, and assist you in researching the developer.
Work with a good mortgage broker
A builder will want to see that you have a mortgage approval in place before they will consider your offer. Many builders do not consider pre-approvals, they want to see a full approval. Speak to a lender like LendCity Mortgages that has lenders that can lock in your rate for one year. To contact LendCity click the link above or call them at 1-519-960-0370.
Learn about the selling process
The key to making a good new construction condo investment is to understand how the selling process is different. The contract needs to cover all of the buyers’ rights, including the deadline to back out without forfeiting the deposit, financing options, incentives and any inclusions. Find out what kind of closing costs are expected, and whether you can assign them to a subsequent buyer. You’ll also need to get the blueprints and floor plans as early as possible. This gives you enough information to understand your investment since you can’t physically tour the property yet.
Understand the closing dates
When you buy a new construction condo, you’ll be subject to two types of closing dates: the day you can move in, and the final closing date. The time between moving in and the final closing is called “interim occupancy.” You’ll pay the builder interim occupancy fees, which are based on your mortgage interest, as well as condo maintenance fees. The final closing date happens when the builder registers the building with the city. You’ll pay any closing costs and final adjustments on this day, and your mortgage will begin.
Should you invest in new construction condos?
If you’re considering a new construction condo, the best thing you can do is talk with experienced real estate agents in the area. They’ll help you understand all the costs, risks and benefits associated with new construction in your target market, and should be able to name some reliable builders. Assuming new construction works with your budget, it can be a very lucrative investment.
The Complete Guide to Buying a Pre-Construction Condo
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