Why Invest in New-Build Condos?
Every investment has its benefits, and here are just some of the many advantages to investing in new-build condos. This investing strategy is one of the easiest way to get started simply because you don’t need to get a mortgage until the unit is actually built, which in many cases can be 3 to 4 years after purchase. To begin the process, you just have to pick a unit, sign for it, ensure you’ve had a lawyer review the agreement, give the builder a deposit, and wait. It is a straightforward and easy process.
Another benefit in investing in new-build, is that from the time you hand over your deposit to the time your unit is complete, your investment will have already appreciated in value. Although the entire process to build may take years, it may only take a handful of months to see tens of thousands of dollars of equity in that time, on paper at least.
Before purchasing, it is so important to research the builder. Sometimes builders are not able to secure construction financing or simply cannot get the required permits to start building, resulting in a cancelled project. In this scenario you will receive any paid deposits back in full as per your Tarion Home Warranty, but you would miss out on the equity and profits you should have been accruing during the build process.
What’s the “Secret Sauce” as an Investor?
The secret to purchasing new-builds is to buy during the first-release period. Builders release units slowly, about forty-five to fifty units at a time; once those units are sold the developer will sell a new release of units, only this time at an increased price, usually 2-4%. This, in effect, forces the appreciation of the previously sold units and in order to capitalize the most from this strategy, it’s imperative that you purchase right at first access pricing. Not only will you get the best pricing, but also the best layouts! There have been countless occasions where I’ve seen investors tie up a unit by signing for it and leaving a $5,000 deposit, and before that buyer has even completed their automatic 10-day due diligence period (provided in the province of Ontario) that same floorplan either one floor above or below is now being sold $10,000 more than what they paid. I’d say that makes for a very profitable couple of days, wouldn’t you?
What most people don’t understand is that first access is often not provided to the public at large; instead, the developer works with just a handful of “Platinum Agents” providing their clients and their clients alone access at the start. So what does this mean to you? Well by the time you see a billboard with advertising or are able to walk into the sales centre off the street without an agent, you can assume that prices have already been increased, one, two, maybe three times already and so the opportunity has been lost. Not to worry though, get in first on the next one, because there’s always another great project around the corner!
PRECONSTRUCTION MASTERCLASS
Why Invest in Toronto?
The Toronto area is seeing immense growth, in fact, the technology sector alone is outpacing that of Silicon Valley. Toronto is unique in that it doesn’t rely on any one industry to provide jobs for its residents which insulates it from industry market fluctuations, making it a safer place to invest over other cities. Simply, people want to work here which means they have to live here and living here is pretty darn great.
We are expected to see 200,000 people move into the Greater Toronto Area year after year for the next ten years. Toronto has some of the best schools, the film industry, banking, some of the world’s best hospitals, and the tech sector increasing operations. Toronto is becoming a place companies want to bring their businesses due to opportunities, access to talent and lower tax rates.
Are we Overbuilding Toronto?
Despite all of the construction we see taking place, Toronto is actually experiencing a housing shortage. Again, there are 200,000 people move to the area each year and, on average, households are made up of 3 individuals; this means that we require roughly 67,000 units built yearly in order to keep up with demand. As historical stats show, however, only thirty-five thousand new units are being completed each year, putting upward pressure on pricing, great for investors.
Who Are Going To Be My Renters?
We have reviewed extensive research on what millennials thoughts and behaviours are in regard to purchasing real estate. What we’re noticing is that, contrary to popular belief, millennials still dream of owning their homes one day and have every intention of doing so. Having said that, their expectation of what this “dream home” looks like differs from that of their parents and many generations before them. No longer are people looking to move to the suburbs to spend their weekend’s happily tending to their lawn, instead millennials are looking for culture and access to shops, sports and entertainment. Regardless of what the dream looks like, millennials have a keen awareness that securing the funds for a down payment may take some time and so most of them start off by renting.
What Should I Look For When Choosing a Broker to Help With My Investment
Experience matters when it comes to choosing a broker or agent. We are one of about seven to eight firms in Toronto doing one hundred and fifty to two hundred units per year. You need to be purchasing and investing with somebody pulling those kinds of numbers in order to get that first access pricing that will maximize your investment.
Something we here at REC offer is that we will get the unit rented for you once the building has gone into its Occupancy period. That means that you will already have a tenant in place with a one-year lease agreement on closing day and ensures you start making money right away. It will also qualify you for an HST rebate that has been put in place to prevent investors from just parking their money in real estate, choosing not to live in the unit or rent it out.
Look for agents who offer similar incentives because ultimately this ensures that they aren’t going anywhere and will have your best interest at heart. No agent wants to offer tenant placement on a unit that simply isn’t rentable.
Other Tips for Investors
Take your emotions out of the buying process. Investors make mistakes that cost them money because they buy a property they want instead of what will bring in enough money to cover their expenses. For example, buying a condo because it has a lake view or because it’s the penthouse suite may meet your criteria if you were living in that space, but simply doesn’t make sense for the average tenant. Remember, tenants are price conscious and will not necessarily pay more rent to be on a higher floor or have a better view. Make sure you’re investing in something that has a lot of tenant demand and this will ensure low vacancy rates and that your expenses are fully covered.
Buy something cookie cutter that you know you’re going to be able to rent out year after year after year consistently. If you can’t afford a two-bedroom unit, go with the one-bedroom. That’s as cookie-cutter as it gets and still an excellent investment because there will always be a single, young professional who needs to rent a single bedroom space. ALWAYS.
Don’t get too wrapped up in one building. As Toronto continues to grow, there’s going to be another preconstruction opportunity next week, next month, and even three months from now. What’s most important is that you’re purchasing right at that very first access pricing.
Purchase a unit on a lower floor, if possible. Builders charge more the higher up in the building you go, and most tenants will not care about if they’re eight floors up or on the ground level since they’re not looking at this as their long-term home. Essentially, the tenant is trying to save up money to buy their own condo in the next couple of years and are trying to find an affordable place to rent in the meantime.
Try to have the first 10 percent of deposits sitting in your account so you can be ready to purchase.
Once you have purchased one investment property and have built up enough equity, pull out the equity and go buy another property to do it all over again.
We never want to get into an investment, let alone put one of our clients into an investment that’s going to be stressful. Do your research in advance to avoid this.
Don’t let fear hold you back. No matter what, investing requires you to take a bit of calculated risk and with that, comes fear. If you’ve done the appropriate research and are working with someone you trust, take a leap of faith!