Investing in a pre-construction condo

Investing in a pre-construction condo is not without risk. You are effectively buying a contract with the hope that one day this contract will become a piece of real estate that is worth more than the price you are paying for it today. A lot can happen in three to five years while your condo is being built. Here are two tips to help ensure your investment is a successful one.

Always buy below market value

Your goal should always be to buy something that will increase in value, and the best way to do that is to buy something that is priced below the current market value of a similar resale property. For example, if a one bedroom across the street in a brand new completed building sells for $300,000, and you can buy a similar one bedroom in a pre-construction condo for $285,000, then you are well insulated from any market fluctuations over the next few years and you are positioned to have a property that is worth more when completed than when you bought it pre-construction.

Always buy cash-flow positive

Investing in real estate is not a get-rich-quick scheme, but it is how most of the world’s wealthiest people have earned their fortunes. The best real estate investors always buy for the long term. I always encourage my clients to take the long-view approach when buying pre-construction and to plan on renting their unit out for at least one year (preferably more) after the completion of the building.

Flipping before project completion (assignment) is a highly risky strategy and should be considered only as a back-up plan. With this in mind, you should only buy a pre-construction condo that will provide you with positive or break-even cash flow with the standard 20 to 25 per cent down payment. If at the current valuation and given current market rates for rents, you cannot reasonably expect to cover all your expenses, then stay away!

If you do your homework before buying by following these two tips you will be in great shape for years to come.