Why Invest in Pre-construction Condos?
In Toronto’s hot real estate market, an early purchase of a pre-construction condo can usually yield a profit once the building is finished. Despite concerns about market saturation, pre-construction condos are still an excellent investment – here’s why.
Think about other investments like stocks, mutual funds or RRSPs. This growth is based on how much you invest. Real estate is a little different in that your investment appreciates at the property’s value – not the invested amount. In other words, real estate investments can help you leverage limited funds for greater returns.
You don’t need as much saved as you think
Pre-construction projects have structured deposit schedules that spread that initial down payment over the course of construction. Often this is in installments of 5% at the 30, 60, and 90 day period, with the final 5% paid at occupancy. Each developer and project is different, but each one uses a deposit schedule. This requires less up-front cash and gives you more time and flexibility in saving for your unit.
Let’s say you’ve got less than 20%. It’s easy to see that a 5% down payment on a $400,000 condo would leave you with a $390,000 mortgage, plus expenses in CMHC fees.
By purchasing pre-construction, you’ll have paid 20% of the purchase price by the time you move in, reduce your mortgage, and no CMHC fees – yay for savings!
Pre-construction as an investment
Do remember that resale properties have fees that are avoided with pre-construction. Forget about the bidding wars, inspection fees, and other closing costs. Of course, you won’t see returns on an un-built project. Real estate purchases are not necessarily about short-term gains. Pre-construction condos offer an excellent opportunity to grow your equity with a smaller investment