You have worked hard over the past few years, with the dream of owning your own home in this wonderful city of Toronto. You are tired of paying rent, which is only forecast to get worse in price and availability over the next 10 years (as of 2017).
But every time you come close to being able to afford a home, the prices rise up faster than you can save up for that down payment.
If you have even remotely followed Toronto's real estate market for the past decade, you will agree that most likely, you aren't saving fast enough.
As a potential home buyer, it is simply a race between how fast you save up vs. how fast prices rise.
If you are close to having saved enough, then bravo...either you don’t eat at all or you have a pretty good source of income!
For the rest of the slow(er) savers that are left behind, there is still hope.
What if we told you there is a way to lock prices now, but buy the property a few years down the road?!
That’s right! You keep on adding to your savings, but we’ll keep today’s house prices locked for you.
With Pre-Construction Properties. They will get you way ahead in the savings vs. house prices race!
If you want to know how investing in a pre-construction property can result in multiple ways you can save and get closer to buying your home in Toronto, read on.
1. LOWER PURCHASE PRICE & DISCOUNTS
When a developer opens up their units for sale, they price the property 2-3 years down the road, for when you are expected to receive the unit. Their estimate is usually fairly conservative and ends up being lower than what you would expect a property to go for in the future. This is because the pre-construction property is still a few years from being completely ready for occupancy.
EXAMPLE: A 2-bedroom condo today is worth $500000. 3 years into the future, the builder expects the realistic value to be $600000. Being conservative, the pre-construction builder will sell the unit for $575000. So 3 years into the future, you can expect to get the property for much less than what you would normally get it for. Infact, if prices appreciate even faster than expected, your discount will be worth even more!
Additionally, setting lower prices allow the builder to sell the pre-construction units quickly. You see, usually the builder needs to have 70-80% of units sold before they can move onto the next stage of construction and bank financing. So it's a win-win for everyone involved.
One more awesome benefit: Even if the property value rises, which it typically does in a healthy market, your purchase price remains the same.
The builder may choose to offer other incentives as well. These can range from discounts on parking, lockers, furniture or appliances.
2. NO MORTGAGE TILL CLOSING
Technically, since the property doesn’t “exist” yet, you don’t have to get a mortgage on it. You simply have to give a deposit to the builder to book your unit.
Your mortgage will only start when the unit is built and the building is registered with the municipal corporation.
3. EXTENDED DEPOSIT STRUCTURE
The deposit structure to book your unit varies according to the builder. Many require a full deposit of 15-25% of the purchase price. Even with a low purchase price, that might be unaffordable for many.
However, certain builders may offer something more appealing: a split deposit structure.
For example, a common structure is to give 5% on signing and 5% every year for the next 2 years. This gives you 3 years to come up with a total of a 15% deposit.
Sounds less stressful, doesn’t it?
This 15% will eventually turn into your down payment, when the unit is built and you close your deal. (You can, of course, add more to your down payment, if you wish)
Again, these deposit structures for pre-construction properties depend upon the builder, but usually range anywhere from 5% to 20%.
4. YOU HAVE A FINANCIAL GOAL
Once you have a structured payment plan with the builder, there is a purpose to the money your earn and save.
Often, even for the most disciplined individuals, it is tempting to spend extra money on things such as food, vacations, entertainment and other hobbies.
Don’t get us wrong. We are not saying to stop eating out or enjoying life. However, with small compromises, you know that the money that you save will be used towards an investment that will give you a home, along with potential financial profits from the appreciating value.
Read this article about how a 19 year old Toronto resident bought his first pre-construction property with careful financial planning, to ensure a secure future.
5. A BRAND NEW HOME TAILORED TO YOUR TASTE
You will get to choose several features to make your brand new home customized to your liking.
This includes upgrades such as fixtures, cabinets, doorknobs, flooring, tiling, paint and appliances.
Of course, this varies with the different pre-construction properties, and some upgrades come at an added cost.
6. A COOL DOWN PERIOD
All pre-construction properties allow you to change your mind, within a certain time period.
In Ontario, you can completely back out of a pre-construction property within 10 days of purchase, no questions asked and without any penalty!
When you purchase a pre-construction property, you are given an APS (Agreement Of Purchase and Sale) by the builder. You now have 10 days to present this to a lawyer. The lawyer will go through the fine print and let you know of anything that may seem off (such as closing costs or caveats on delays).
If you are unhappy about any details, you can request the builder to amend it. Otherwise, you are completely free to walk away from the deal if you choose.
For some reason, if you decide not to move into your unit, pre- construction properties give you the option of assigning your unit to another buyer, meaning you put it up for sale. This is referred to as an assignment (not “selling”) because technically your unit does not exist yet.
Here’s the kicker. In a healthy market, the price of your unit may have appreciated to a higher value. If so, you can sell it at the higher price. That’s right...
You can buy a pre-construction unit and potentially sell it for a profit, without ever having held a mortgage.
There are several investors who do this. You simply have to come up with the deposit and sell the property if and when the value appreciates!
It’s a win-win situation.
The seller makes a profit on the pre-construction unit.
The buyer gets the pre-construction property for much lower than market price and doesn’t have to wait long before it is ready for occupancy.
BOTTOMLINE ON PRE-CONSTRUCTION PROPERTIES
The right kind of pre-construction property can remove a lot of financial strain off you.
Of course, you have to be patient with the wait that comes along with the pre-construction investment, but you can reap several benefits such as
- Low Purchase Price
- No Mortgage Till Occupancy
- Extended Deposit Structure – gives you time to collect savings A Set Financial Goal
- A Property Tailored To Your Taste
- A 10-day Cool Down Period – should you wish to back out
- Option to Sell with Assignment – make a profit!
Are You Ready to Buy a Pre-Construction Property?
Due to our stellar record in pre-construction sales in Toronto, we are privy to some of the best pre-construction deals and assignments!
We only recommend reputed pre-construction developers who have a proven record in the Greater Toronto Area real estate market. We also try to ensure that the property has an appealing deposit structure, so it is less burdensome financially.
If you feel that purchasing a pre-construction is the right choice for you, feel free to contact us.
Do You Have Your Down Payment Saved Up Already? Would You Rather Not Wait For a Pre-Construction Property?
In that case, check out a couple of other options.
As mentioned earlier, these are pre-construction properties that are being “sold” before occupancy, by the original buyer. The benefit here is
- you would still get the property at below market price (although higher than the original purchase price)
- you won’t have to wait long for occupancy. This, of course, varies by assignment
- you still get a brand new unit!!
WANT A PROPERTY EVEN SOONER?
=> READ: Ultimate Home Buying Guide for Toronto
=> SEARCH: Interactive Map Search for Toronto Properties