Thinking of investing in a Pre-sale? The benefits and challenges of investing in a pre-sale condo or townhome

When you are thinking of investing, your options can be a bit overwhelming. There are a lot of factors in play: how much money you have to invest, your tolerance for risk, your personal interests, and your general financial goals. The Metro Vancouver real estate market, particularly for new buildings, has proved very resilient to changing economic times, and so, for many people, has become an effective way to invest money. Before you invest in anything, you should reach out to your financial advisor, as well as a reputable Realtor. Mike Stewart is one of those people; an award-winning Vancouver Realtor with MikeStewart.ca, and founder of VancouverNewCondos.com, Mike and his colleagues help buyers and sellers of both new and existing homes throughout Greater Vancouver, The Fraser Valley, Southern Vancouver Island, and The Okanagan Valley.

The following are some very good reasons some people choose to invest in pre-sale condos, according to Mike’s extremely informative website, mikestewart.ca.

• Low Hassle Investment with Potential for Capital Appreciation – Pre-sales allow investors potential capital appreciation in a rising market prior to completion without the hassle of tenants, the cost of property taxes and maintenance fees. Presales can often be sold prior to completion by the original buyer of the pre-sale for a profit (sometimes not at a profit) and this is referred to as an “assignment of contract”.

• Warranty Protection – When the property completes the investor gets a property with a full 2/5/10 Warranty which in most cases means low cost and low hassle ownership during the life of the warranty.

• Leverage – An investor may be able to purchase a pre-sale by putting down a deposit of five to ten per cent. Should the property increase in value before completion, an investor could see a significant return on the deposit money invested. Also, in a rising market, an investor may be able to buy a presale a with a five per cent or ten per cent deposit and then complete on the property with over 20 per cent in equity without putting up any more money, up due to the increased value of the property at completion. This would allow the investor to avoid costly CMHC high-ratio insurance premiums required for properties purchased with less than a 20 per cent down payment.

• Low Cost of Ownership – New condos built by good developers, in most cases, will not require a lot costly and time-consuming repairs or maintenance on the part of an owner/investor as compared to an older building.

• Popularity with Tenants – Newer buildings tend to be popular with tenants for a lot of the same reasons they’re popular with investors, newness, no need for repairs or troublesome and costly maintenance as well as the modern conveniences that newer building tend to come with such as gyms, saunas, hot tubs, concierge, swimming pools, etc.

• Newer Suites Often Get Higher Rent – Brand-new is popular, and very often prospective tenants are willing to pay a premium to rent a newer suite over an older suite.

Kush Panatch, of Panatch Group has a lot of experience building homes for all types of buyers, including investors. “Regardless of buyer type, with presales, buyers benefit from the ability to plan their payments due to the fact that they know exactly what they are paying and when, there are no bidding wars, a variety of home types and colour schemes to choose from, and the peace of mind that comes with the new home building warranties that are in place for years after completion”.

There are many factors to consider before investing your money in a pre-construction condo or townhome unit. Firstly, it’s important to Find a reputable builder. You are putting your money and trust into a building that doesn’t exist yet. Consult an organization such as The Homebuilders Association of Vancouver (HAVAN) to find a reputable developer, and then ask questions such as: “Were past projects completed on time and if not, how delayed were they?

Next, you must choose the right location. The higher the population density in an area, the higher the demand. Says Kush, “if the development, like Panatch Group’s 50 Electronic Avenue, is located close to transit and amenities, then it will always be in demand, ensuring lasting value. The sentiments from our buyers are that they are excited to be making one of the biggest investments of their lives in a community that is growing and has so much to offer”.

Lastly, though short-term profits from assignments are possible, our market has lots of potential for people who think long-term. Realtors and economists say that long-term goals are the most important thing to consider when it comes to pre-construction condo investment. “If an investor believes the value of a condo will increase over time, they are probably right,” Benjamin Tal, deputy chief economist for CIBC World Markets said in an interview with CTVNews.ca. “The condo space is the most affordable channel to homeownership. Demand will continue to be strong. I think within the next year or two, profiting from investment may be tricky. But, I think from a long term investment, they will do extremely well.”

https://www.mikestewart.ca