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6 questions to ask your builder

1.     Where are you building? Determine your area of choice, and which builders are active in the community. Ask people you trust for recommendations. Nothing beats first-hand experience.

2.     What's your experience? If this is starting to sound like a job interview, then you're on the right track. How long has the builder been in business? How many homes or condos do they build each year? What kind of background and experience do they have? Get references.

3.     Are you licensed with the proper registrations? If they don't take care of their own house, how can you trust them to take care of yours?

4.     Is there a model? Take a tour, noting what you like and what you don't. Take your time, and if you feel you don't know enough about construction to make a decision, bring someone with you who does.

5.     Can I get a site tour? This isn't always possible, but it's definitely worth asking. You can tell a lot about a builder by seeing them in action.

6.     Can I see the master plan? Request this from the builder as well as the municipality. A brand-new community will look very different in 10 years than it does today. Know the future plan for retail, schools and services, public spaces and infrastructure. These all affect the value of your home.

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The Pros and Cons of Buying PreConstruction

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Estimated reading time: 2 minutes, 59 seconds

Buying pre-construction means that the buyer invests in a unit before the project is actually built. This requires a certain amount of foresight, research, and thinking like an investor rather than a live-in purchaser. You need to know exactly where that neighbourhood is heading in the coming years, the potential future returns on your investment, and the comparisons between different project options within your budget constraints.

While looking into new development options, here are some factors you should be considering:

1. Surrounding Amenities

2. City plans for the next 10 years

3. Transit friendliness

4. Parking/Garage options

5. Price per square foot

6. Market value

7. Comparables in the same building

8. Comparables on the same street

9. Growth/appreciation

10. Floor plans

11. Condo amenities

12. Features and finishes

13. The developer’s reputation

Remember that real estate investments are only likely to bring positive returns if you hold onto them for 5-10 years. This goes for both pre-construction and resale units. You need to seriously consider both your own financial plans within that timeline, as well as the needs of any prospective tenants that you might rent the unit out to.

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Pros of buying a pre-construction unit:

• You get a say in the design plans and can customize certain elements (such as appliances, finishing, paint, and flooring). If you understand design trends and mass-market needs, you’ll be able to ensure your condo’s desirability to potential tenants.

• Value per square footage is always better. Pre-construction condos offer incredible value when compared to other investment options.

• You’ll have more time to save up for your condo, by paying the builder a series of smaller payments as deposits. The deposit usually adds up to 20 to 25% of the purchase price by the time of occupancy, depending on the builder’s deposit structure.

• You get a brand new project. New condos tend to be trendier, more upgraded and offer better amenities than their resale counterparts.

• Low maintenance fees. New buildings require less maintenance, which means less long term budgeting. And no renovations for at least a decade!

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Cons of buying pre-construction:

• Even though you will have access to virtual representations and models, you are buying before seeing the finishes, the details or the outside view of the building.

• Unlike a resale, a pre-construction sale is subject to HST. But if you’re planning to live in the new condo (rather than renting it out), you might be eligible for an HST rebate.

• Nothing is guaranteed. A condo building usually takes several years to complete. There is always a chance that the builder won’t sell enough units to proceed with construction, or that they won’t finish construction on time (or at all!). Also, it sometimes happens that the condo looks a bit different when it’s finished than it did in the plans proposed by the builders.

• The biggest con of a pre-construction unit is that it’s a non-liquid investment- you freeze up a large chunk your capital for 2-4 years (the time it takes to sell and build the units). Pre-construction units usually have larger down-payments than resale counterparts, and you can’t touch your cash or pull out should you need it.

• It’s a bit trickier to calculate market value for a a pre-construction condo, since you can’t base value previous sales in the same building.  It’s also hard to tell what your rental income will be, which makes it harder to calculate your cash flow based on the investment..

All in all, both both pre-construction and resale have their pros and cons, depending on your preference, your budget and the amount of risk you’re comfortable with. Before you make a decision, it’s a good idea to consult a real estate agent and/or a financial planner to find out your options.

Why did we write this guide?

 

This is the most extensive and detailed guide on investing in pre-construction condos in Toronto.

We want to be the number one source of information for pre-construction condominiums.  Our team meets with hundreds of investors for new condos every year and there is one common statement that we hear time and time again; there is no one place to get all the information that you need to get started in investing in pre-construction condos.  We want to be your one stop for information and give you the best access to the best new condo projects in Toronto.

Who is this guide for?

This guide is for anyone interested in pre-construction condominiums.  We share details, tips and tricks about investing in Toronto that work for every level of condominium investor whether you’re just getting your feet wet, or even if you have purchased new condos in the past.  We feel there is something for everyone.

How much of this guide should I read?

I would suggest reading it all.  We have split this guide into three easy to understand sections:

 

·       Chapter 1 (This Chapter) – Why Pre-Construction and why Toronto?

·       Chapter 2 – How to buy Pre-Construction (including the best tips and tricks to getting the best deals)

·       Chapter 3 – What Pre-Construction Condos to buy (because we know that not all condos are built equal, so it’s very important to put your money into the right project!)

 

CHAPTER 1 – Why Invest in Pre-Construction Condos in Toronto?

Before we start talking about anything, it is important to understand why pre-construction condo investing is so popular and what makes it so unique.  The first step to investing in new condos is to understand the investment vehicle to make sure that it makes sense for you.  

There are many factors that make the Greater Toronto Area such a unique area to invest and we will highlight four key points on why we believe the prices and rentals will continue to grow in the coming years.

​

Why Pre-Construction Condos?

Pre-construction condominiums have become a very popular form of investing with approximately 20,000 new condos being sold every year.  There is HUGE demand for the best projects every year where investors feel that they can get the best returns (we will talk more about how to choose the best projects later in this guide).  We ourselves invest in multiple new condos and there are a variety of reasons that we make this our investment of choice.

1.  Managing multiple condominiums is a passive form of investing and can be done with very little man hours.

2.  Pre-construction allows you to purchase brand new condos that are often priced higher than existing resale condos once built (because buyers want to be in the “newest building”) and allow investors to make significant profits by purchasing below resale buildings.  This effectively allows you to “buy at a discount and sell at a premium”.  Note, not ALL pre-construction condominiums are great investments so it is important to understand how to pick the projects that will help maximize your returns.  

3.  Pre-construction condo deposit structures (typically 15%-20% over 12-18 months) make it easier to purchase

4.  You are able to purchase and invest with low deposits (15%-20%) allowing for big opportunities to leverage your money

5.  There is no mortgage or loan required during the duration of construction – this is almost like getting an 80% interest-free-loan for the duration of construction on an appreciating asset.  To purchase a condominium at $300,000, your investment is just $60,000 (20%). For a condominium that is $350,000, your investment is $70,000 (and so forth).  From an investment standpoint, it means that for every dollar that you put towards the condominium, the developer is putting in $4. It means that you essentially have an 80% interest free loan from the developer for the duration of construction on an appreciating asset.

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Why Invest in a Toronto Condominium?

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Greenbelt: The Legislation That Changed Everything

In 2005, the province instituted the ‘Places To Grow’ policy, which froze 7,200 square kilometers of land (called the ‘Greenbelt’) for development, in an effort to protect the land, and to increase intensification.  To help put some perspective on the size of the Greenbelt, it covers an area larger than Prince Edward Island.

 

The policy created a major shift in how developers were able to use the land inside the Greenbelt.  Prior to the 2005, most new development was sprawling low rise development, but the new protected lands meant that for the first time there was scarcity of land inside the Greenbelt.

This means developers were forced to build low rise OUTSIDE the greenbelt (North of Newmarket, etc.) or build high rise INSIDE the greenbelt (in the GTA).

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Greenbelt: Shifting to High Rise

Looking back to the mid 1970’s, there has always been approximately 40,000 new home sales, but the composition of what the developers are building has changed.

Since then, on average, each and every year, the number of low rise has declined, and the number of highrise has increased, averaging out in the 40,000 total range. This ’40,000’ number has remained relatively constant since the 1970’s. The graph below shows the impact of the Greenbelt on the composition of development in the Greater Toronto Area, with 2007 (two years after the Greenbelt was enacted) being the first year that High Rise outsold Low Rise.

 

The graph highlights the total number of sales (yellow line) which is then broken down to low rise (red line) and high rise (blue line).  The graph highlights a couple of key points:

·       The impact the Greenbelt has had on the type of housing that is built in the GTA is clear to see.  Before the Greenbelt Act, there was a huge gap between the amount of low rise being sold and the amount of high rise.  Just two years after the act, high rise outsold low rise for the first time

·       Every year since (with the exception of 2008 when there was a minor market dip), high rise has outsold low rise and we believe it will continue to do so

·       The total number of new sales has always been approximately 40,000 when averaged out over the years (some years a little higher, some years a little lower).  The increase in high rise development has REPLACED decreasing low rise sales

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Immigration

Immigration is the #1 source of the population growth in the GTA.  According to Statistics Canada, there are roughly 260,000 to 280,000 new people to Canada each year – NET migration (foreign and domestic immigrants minus emigrants).  These new people are not moving to rural Saskatchewan and Manitoba – they’re moving to the big cities such as Toronto, Vancouver and Montreal.

In fact, Toronto receives 100,000 to 150,000 each year. We have for the past 10 years, and according to Statistics Canada, we can expect the same for the next 10-20 years.

To house these new people, the Greater Toronto Area (GTA) requires roughly 40,000 new homes each year, or 1 home per 2.5 people.

The graph below shows the population of the GTA as reported by Statistics Canada, and also highlights the projected growth.  It is expected that by 2036, the population of the GTA is surpass 9 million people.

Source: https://www1.toronto.ca/city_of_toronto/city_planning/sipa/files/pdf/flash_sec2.pdf, Statistics Canada

 

What that means is that over the next 20 years, Statistics Canada is predicting almost 2 million new people in the GTA which means we need to build 800,000 new homes (assuming the average of 2.5 people per household) to house all of these people JUST to satisfy the demand from immigration.

This information, coupled with the Greenbelt legislation that we already discussed means that there will be further densification and urbanization as we are forced to continue to “grow up” and not “out”.

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Toronto’s growing rental market

One of the biggest myths is that we are creating too much condominium supply in Toronto.  What the “myth” doesn’t take into consideration is how much need for housing there is in the City.  One of the key factors that we look at is the rapid growth of the Rental market which has quadrupled in the last 10 years.  

In 2006, the Toronto Real Estate Board (TREB) recorded 6,189 rentals which has grown every year since.  Last year there were 24,869 rentals which represented an incredible 400% growth in 10 years and a 27% increase from the previous year.

 

Despite the number of rentals growing every year, we are also seeing upward pressure on pricing which indicates that demand for rentals is still outpacing supply.  In 2015 the average rent in Toronto reached $1,910.25.

 

One of the biggest differences between Toronto and other major cities is that there is NO RENT CONTROL.  This means that for new condominiums, Landlords are free to increase rents from year to year based on market conditions instead of being tied to Rent Control rules.  This gives the Landlord a great advantage in the Toronto rental market.

 

In addition to the increased amount of rental suites and rental rates, we continue to see a very tight market with respect to vacancy rates.  The vacancy rates in Toronto remain very low (in and around 1%) despite the increase of supply from the new condominiums.  This tells us that the number of people coming into the city is on par, or higher than the supply of new condominiums being built.

 

Low prices compared to global cities

Prices in Toronto remain relatively affordable especially when compared to major economic hubs around the world.  The graph below shows what you can get for $1 million (on average) in different major Cities across the world.

City

What do you get for $1 Million?

TORONTO

1,620 sq.ft.

Vancouver

1,100 sq.ft.

Shanghai

497 sq.ft.

Moscow

463 sq.ft.

Paris

448 sq.ft.

New York

433 sq.ft.

Singapore

350 sq.ft.

London

271 sq.ft.

Hong Kong

221 sq.ft.

Monaco

161 sq.ft

The graph highlights how Toronto compares to other major Cities where $1 million is just a starter price point.  In Monaco, perhaps the most expensive real estate market in the world, your suite would be 10 times smaller than in Toronto for the same price.  What does this data tell us?

·       In terms of major economic hub Cities, Toronto is still very affordable on a relative scale

·       Toronto still has a lot of room to grow as the population grows, jobs move back into the core and the public realm is improved

·       This is one of the reasons that overseas investors look at Toronto as a place to park their money

 

5) Chapter 2 – The Ultimate Guide to Buying Pre-Construction Condos in Toronto

 

Why did we write this guide?

We want to be the number one source of information for pre-construction condominiums.  Our team meets with hundreds of investors for new condos every year and there is one common statement that we hear time and time again; there is no one place to get all the information that you need to get started in investing in pre-construction condos.  We want to be your one stop for information and give you the best access to the best new condo projects in Toronto.

Who is this guide for?

This guide is for anyone interested in pre-construction condominiums.  We share details, tips and tricks about investing in Toronto that work for every level of condominium investor whether you’re just getting your feet wet, or even if you have purchased new condos in the past.  We feel there is something for everyone.

How much of this guide should I read?

I would suggest reading it all.  We have split this guide into three easy to understand sections:

 

·       Chapter 1 – Why Pre-Construction and why Toronto?

·       Chapter 2 (This Chapter) – How to buy Pre-Construction (including the best tips and tricks to getting the best deals)

·       Chapter 3 – What Pre-Construction Condos to buy (because we know that not all condos are built equal, so it’s very important to put your money into the right project!)

 

CHAPTER 2 – How to successfully buy Pre-Construction Condos in Toronto

Anyone can walk into a sales office and buy a new condo.  The savvy investors take their time and wait for the right opportunity and are quick to react when they become available.  In this next chapter we will explore some of the biggest mistakes that new condo investors make (many times costing them thousands of dollars) and how to avoid them.  We will teach you about the secrets of the Toronto Condo industry that will help you take advantage and buy the best units at the best prices.

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Pre-Construction Condos: Timing is everything

One of the biggest secrets of the Toronto Condo industry is: Timing is everything.  You can study every spreadsheet, research every lot surrounding the condo to ensure your view is protected and micro-analyze every last detail; but if you buy at the wrong time then you could be leaving thousands of dollars at the table.  Remember, you make money in real estate by what you pay for it, not what you sell it for.

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Developers Need to Pre-Sell 75% of the Condo Project

In order to understand how we can take advantage of the developers to get the best prices, it is important to realize that most developers in Toronto need to pre-sell 75% of their condominium before they are able to secure construction financing (that is, before a bank will loan the money to the developers to build the tower).

 

Why does this matter? Knowing their sales target allows us to pinpoint very specific times to be able to get the best deal.

 

The Platinum Launch – Buy Early to Save Money

When a developer launches a new condominium project, they typically do so in 5 stages (note, every developer has a slightly different way of launching their project – however, the below is an aggregate of what we see in the market place).  The condo launch cycle is a tried and trusted method of selling projects by developers and is important for investors to understand.

There are typically 5 different launches, and as you go through the launch cycle the best suites are sold off, the developer tends to increase prices remove and remove incentives (which means that the later you buy, you are often paying higher for the “leftover suites” after all the best ones have been picked through).

The five launches are:

·       Friends & Family of the Developer

·       Platinum Launch – a handful of the top agents are invited to sell with the best prices

·       VIP Launch – 300-500 agents invited to sell

·       Any Agent – All 40,000 agents on the real estate board are invited

·       Public Opening – Anyone who registered directly with the developer or general public are invited

Generally speaking, if you are invited to purchase directly with the developer or are able to walk into a sales office then the chances are that there have already been 5 “launches” before you and you’re looking at leftover suites with higher prices.

 

 

The next graph shows real life examples of the pricing for for a standard 500 sq.ft. suite in three projects at each different stage of the sales cycle.

 

 

As you can see from the graph, the prices all three projects increased over time with each launch.  The “red line” (indicating a project located in the Downtown Core) increased from around $330,000 to over $430,000 between the first and last launch – a difference of $100,000 for the same suite, in the same building but at the wrong time.

Similarly, the “green line” indicating a project in the Entertainment District had a large jump between the first and second launch but then remained consistent through the remaining launches.  However, if you didn’t purchase at the right time, you may have paid over $40,000 for the same suite as your neighbour.

These are real life examples of price increases, sometimes in a matter of days or weeks.  This is what we mean when we say “TIMING IS EVERYTHING” in successful pre-construction condo investing.

Generally speaking, the earlier you can get in, the better.

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Why Don’t the Developers Sell Direct to the Public Quicker?

We get this question a lot.  The assumption is that a buyer walking into the sales office without an agent should be able to purchase directly with the builder and even at a discount (because the developer will be saving on the agent commissions).  However, there are multiple reasons that the developers do not launch to the public quicker.

·       Developers value their relationships with agents – especially the platinum agents.  Platinum Agents tend to have large voices (in the media, online etc.) and sell a lot of condos for developers and so it is important for developers to maintain strong relationships with these agents

·       Marketing to the general public is very expensive – a lot of developers who are able to sell through the agent community will do very little mass marketing to reach out to the general public.  This means that developers are able to budget their marketing expenses more accurately (which tends to be a percentage of the sales price as a commission to the agents) as opposed to doing mass marketing (radio, TV, online etc.) that can cost hundreds of thousands of dollars and results are not guaranteed.

·       Spreading out the marketing dollars – Agents (especially the Platinum Agents) spend money to market the projects on behalf of the developer.  Giving the Platinum Agents “early access” to a project means that the agents, not the developers will be spending large amounts of money to promote their projects

·       If you are going direct to a developer to purchase during one of the early phases, chances are that you heard about the project through an agent who has been marketing the project on behalf of the developer.  The developers are mindful of this and protect the agents that are working with them

 

TRUTH: There are actually TWO best times to buy in a Condo Launch Cycle

We already highlighted that a developer needs to pre-sell 75% of their project before they can secure construction financing.  Sometimes a developer doesn’t get to that magic number and gets “stuck” at 60-65% of sales.  

 

In this situation, a developer may “quietly” put together an incentive package for a very limited number of suites (typically the number of sales required for them to secure financing).  In this scenario, developers have been known to offer very favourable terms to buyers (in many cases offering suites below the Platinum Launch) who are able to act quickly.

There are a couple of notes on these kinds of deals:

·       These kinds of deals are rare, but they do happen (typically 2-4 times per year)

·       In many cases, there is very strict guidelines on how these deals can be advertised.  The developer does not want to upset original purchasers who may have paid more

·       These kinds of deals are typically advertised by word of mouth or privately through platinum agent channels

·       The best way to get access to these kinds of deals is to register for our Insiders Club

·       This types of sales do not tend to happen in the core projects that have no problem reaching 75% in sales

I want to be notified of Private Bulk Deals

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Working with a Platinum Agent

“Platinum Agent” is an industry term to describe agents that get front of line access to new condominium launches.  These agents are often given preferential treatment by developers because they sell a large volume of condominiums and have large marketing reach.

There is numerous benefits of working with a platinum agent when buying a new condominium, including:

·       Better access to new projects, the best suites and typically the best prices

·       Platinum agents typically have insider knowledge of the projects because they meet with the developers in advance of the project launch.  

·       Platinum agents typically have a direct line to the developers, or project managers who may be in charge of unit allocation (which helps secure the suites you may be interested in)

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Is “Platinum Agent” a Gimmick?

In short, no.  There are truly numerous benefits of working with a Platinum Agent on a new project launch.  Agents that sell a large volume of units are given preferential treatment by the developers and sales managers.

If you are NOT working with a platinum agent when buying a new condo:

·       Chances are you are working with an agent that is not as familiar with the inside workings of a new condo launch

·       Chances are you are working with an agent who may not be able to secure the suite that you are interested in (We have seen time and time again, buyers giving their suite requests to agents who have no chance of getting units.  They are simply put to one side “in case” the platinum agents are not able to sell)

·       Chances are you are not buying at the beginning stages of a new condo launch, and you are paying a higher price and/or getting less incentives

I want access to work with a Platinum Agent and Get First Access to New Condos

 

3 Common Mistakes Most Condo Investors Make

This chapter deals with the process of buying a new condominium.  Before you even look at any condominium projects there are various common errors that you can make in the process that can cost you thousands of dollars and are easily remedied if you arm yourself with the correct knowledge.

 

1.Buying at the Wrong Time

 

If there is one point that you take away from this guide, make it this.  When you buy a pre-construction condominium in the GTA, Timing is Everything.  Buying at a new condo project at the wrong time can cost you tens of thousands of dollars so it’s important to know what stage you’re buying at and work with someone that you trust has the inside knowledge of what stage of the sales cycle the developer is selling at.

 

2. Buying with the Wrong Agent

Platinum agents in Toronto is not just a marketing gimmick.  It is a very very real thing.  Developers and sales teams work with the agents that support their projects and give preferential treatment when it comes to prices and incentives, and also allocating the best suites.  

 

We have seen countless frustrated buyers who are ready to buy but cannot get the same access as someone working with a Platinum Agent.  Working with the right agent is literally like getting the “Fast Lane Pass” at Canada’s Wonderland.

 

Buying with the right agent is literally like bypassing the entire line – just like the Fast Lane Pass at Canada’s Wonderland

 

3. Not waiting for the right opportunity

A lot of the times when we meet new investors who are eager to invest, we tell them to sit tight and wait for the right opportunity.  

We already know that timing is everything, so being prepared for the best projects and being able to jump on them quickly is what sets the pro-active investor from the re-active investor.  

 

6) Chapter 3 – The Ultimate Guide to Buying Pre-Construction Condos in Toronto

 

Why did we write this guide?

We want to be the number one source of information for pre-construction condominiums.  Our team meets with hundreds of investors for new condos every year and there is one common statement that we hear time and time again; there is no one place to get all the information that you need to get started in investing in pre-construction condos.  We want to be your one stop for information and give you the best access to the best new condo projects in Toronto.

Who is this guide for?

This guide is for anyone interested in pre-construction condominiums.  We share details, tips and tricks about investing in Toronto that work for every level of condominium investor whether you’re just getting your feet wet, or even if you have purchased new condos in the past.  We feel there is something for everyone.

How much of this guide should I read?

I would suggest reading it all.  We have split this guide into three easy to understand sections:

·       Chapter 1 – Why Pre-Construction and why Toronto?

·       Chapter 2 – How to buy Pre-Construction (including the best tips and tricks to getting the best deals)

·       Chapter 3 (This Chapter) – What Pre-Construction Condos to buy (because we know that not all condos are built equal, so it’s very important to put your money into the right project!)

 

CHAPTER 3 – Identifying the best Pre-Construction Condo Investments

 

There are dozens of new condo launches every year and it can be daunting to look at all the options and decide which projects you should invest in.  The truth is that less than 5% of new condo launches are worthy investments and meet our criteria that we then take to our investors.

 

Identifying the best new condo project is hard, but easy.  What we mean by that is that while it can be daunting, if you focus your efforts and use certain criteria then that large list of condo projects very quickly becomes very small.

 

That criteria is nothing groundbreaking, and just goes back to real estate 101 – the investment needs to be by a strong developer, in a great location and offer incredible value.  Below is a quick venn diagram of how these three critical aspect of a new condo project interplay with each other.

 

The three keys to investing in a new condominium.  It is important to have all three: A Great Developer, An Amazing Location and Incredible Value.  Even if one is missing, you should think twice.

 

DEVELOPER – Always buy from a reputable developer

It is understood that buying pre-construction means that you are buying a piece of paper with a promise to build what was marketed some time in the future.  A big part of the risk of investing in pre-construction condominiums is trusting that the developer will deliver what they promise, when they promise.  

More importantly, perhaps, a good developer will be by your side if there are issues that arise once the project is complete.  

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How do I know if the developer is reputable?

There is no single source that tells us if a developer is reputable or not.  Platinum Agents tend to have inside knowledge about which developers are reputable in the industry and which are not.  There are a handful of useful resources out there that a buyer can look at including:

·       TARION: Tarion is the third party warranty corporation that every developer answers to.  They oversee any complaints and issues that buyers may have had with a builder in the past.  You can search for the builder on their Ontario Builder Directory which highlights how many homes they have built in the last 10 years and whether they have had any claims with Tarion in the same period.  TARION also have two annual awards: The Homeowners’ Choice Awards (voted by the homeowners) and the Tarion Awards of Excellence.

 

The above image shows the Tarion search for Urbancorp, a developer with a notoriously bad reputation that recently went bankrupt.  A quick search on Tarion’s website should have sent up some red flags with a high number of chargeable conciliations and dollars paid in claims

·       BILD: BILD is the Building Industry and Land Development Association.  Every year they host the BILD Awardsthat honor the top developers in the year. This is a great way to see which developers are being rewarded by their peers.

Some examples of great condo developers are:

·       Tridel

·       Great Gulf Homes

·       Canderel Residential

·       Daniels Homes

·       CentreCourt Developments

·       Menkes

·       Liberty Development

·       Bazis International

·       Plaza

Click to Get First Access to Toronto’s Best Condos Before the General Public

LOCATION – Always buy in a location with potential

Everyone knows the old real estate adage “location, location, location” and that rings true when investing in pre-construction.  It is important to understand that when you purchase a condominium, you are investing in a lifestyle.  If you understand that fundamental then it becomes much simpler to pick out what makes a great condominium location.  When looking to identify a neighbourhood and condo developments potential, consider some of the following advice:

·       TIP: Always check out the WalkScore and TransitScore.  They give great insight into what is nearby the condominium

·       Close to Jobs – many people are now looking to live closer to work and as a result it is important to focus on areas nearby major employment hubs including: Financial District, Hospitals, Universities

·       Close to Universities – University students and faculty are a great source for rentals.  Condominiums nearby Universities often give great monthly cash flow from a rental perspective and are very popular investment options

·       Close to Transit – transit lines are becoming increasingly important.  A located close to key transit lines (especially subways or streetcars) are very important for new condo projects

·       Look for investments to make the neighbourhoods better – look where the Government and developers are investing to improve infrastructure (example, the newly proposed Downtown Relief Line Project in Toronto’s East End.Line), or to create brand new neighbourhoods (such as Regent Park, East Bayfront, Yonge & Eglinton, Vaughan Metropolitan Centre which are all undergoing huge change)

I want to invest in Toronto’s best neighbourhoods

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VALUE – Always know your numbers

When you’re evaluating your new condo purchase, you need to evaluate three different pieces of the puzzle to make sure you’re getting the full picture.

1.  Analyze vs. other pre-construction condo projects available

2.  Analyze vs. resale condominiums in the area

3.  Analyze the rental market in the area

When a new condominium is complete, both resale pricing and rental rates tend to be stronger than the existing market as buyers and tenants want to be in the “newest” building in the neighbourhood.  Investors are able to make great returns, especially when they compare the pre-construction condominiums to the resale market and are able to purchase BELOW the existing condos.

The Ultimate Pre-Construction Investing Blueprint
Buy at a discount compared to the existing resale condos
Sell at a premium to those same resale condos once completed

Analyze vs. other pre-construction condo projects available

The first step is to identify other condominium projects that any potential buyer might also look at.  We are looking for three key pieces of information.

·       Percentage sold for nearby projects – if other projects are holding a lot of inventory, this could be a bad sign or a red flag

·       Price of available units

·       Price of available units compared to subject property

I want to invest in new condos that will maximize my returns

Below is a sample analysis that our team ran for YC Condos when the project launched in 2014.  This project is now 100% sold out and will be one of the best investments of the last few years.

 

Compared to similar projects, YC Condos at the Platinum Launch was priced very favourably and ranged from $75-$189 per square foot cheaper than nearby projects with similar level of finishes.  It was also important to note that the other projects sold very well, ranging from 83%-92% sold which tells us that we are dealing with a very in demand area.  This was a great sign but still doesn’t tell us the entire picture.

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Analyze vs. resale condos in the area

The next step is to take a look at how the pricing compares to the resale market.  This is one of the most important pieces to analyze because it tells us what the actual market of buyers is paying to live in this neighbourhood TODAY.

Our team of analysts look at the nearby projects to get a clear sense of where the market is and compare those numbers to the subject condominium.

 

Again, in this example we see that YC Condos was priced below the current resale market despite offering a superior location (right at the corner of Yonge & College), better amenities (including a 66th floor amenity pool) and very efficient suite design.

 

Analyze the rental market in the area

Analyzing the rental market helps us determine an approximate rental rate so that we can run predictable cash flow analysis to calculate the yield on the monthly rents.

 

Once we determine a per square foot lease rate (we determined that $3.25 per square foot would be a conservative lease rate to assume upon completion of YC Condos) then it’s important to run the cash flow model using different mortgage assumptions to determine our cash flow ROI.

Chapter 2

How to buy Pre-Construction (including the best tips and tricks to getting the best deals)

 

 

1. Strategy: Investing in pre-construction new development

Investing in pre-construction refers to buying based on plans and renderings, before a property has been completed. Often developers start selling 1-2 years in advance of anticipated completion date. New developments can be either:

(i) ground up construction, where the whole building is brand new

(ii) conversion, which means the building is existing/prewar and the developer is converting only the interior

 

The advantage to the buyer, who is buying based on floor plans and viewing finishes at the sales office, is the pre-construction discount. Booking a unit typically requires 10 to 25 percent of the property price. The balance is due at closing which is also when the property is completed, during which time prices would have increased as well.

New developments have the best amenities which are very attractive to tenants. This strategy works well for all client categories – those who want to rent out, use as vacation home or simply park funds.

The risk is that, if there’s a recession and the project stalls, the buyer’s 10 to 25 percent booking down payment would be tied up or even lost.

New developments are either luxury or ultra luxury. The selection process is similar, where we would recommend 3-5 projects based on the client’s objective and based on appreciation potential. We look for appreciation drivers in the neighborhood, where is rental demand coming from, whether rental yield meets expectations etc.

At the apartment level, it may get confusing because there are so many units to choose from. We would advise based on layout, floor, exposure and what the market wants.

 

1. https://www.elikarealestate.com/new-york-city-new-developments/)             Buying A Pre-Construction Condo Is All About Risk And Reward

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Why do people purchase pre-construction? That's a lot of money to put down on a plan and a promise that it will be built in a few years.

 

By Lydia McNutt

The pre-construction phase is a popular time to buy a new home or condo, for a number of reasons. Usually at this stage in the game, the home builder offers more competitive pricing to raise the funds needed to get shovels in the ground faster.

This is also the time for buyers to get their choice of lot, floor and exposure, as well as customize their home to their personal preferences.

BLOOMBERG VIA GETTY IMAGES

A model condominium stands inside a showroom in Toronto, Ont. on May 27, 2017.

But every reward carries some element of risk -- the really good ones do, anyway.

With a pre-construction purchase, one of those risks is that the development could fail.

How often does this actually happen? The risk is relatively small, according to Debbie Cosic, founder and CEO of Mississauga-based In2ition Realty, but it does happen. "In 2016, there were five cancelled projects totaling 400 units," she says. Cosic is quick to add that in the same year there were a total of 90 projects completed, with just over 18,500 units.

For those 400, the repercussions can be devastating.

That's a lot of money to put down on a plan and a promise that it will be built in a few years.

Recently, a new Mimico condo, once touted as a transit-friendly hot spot, is making headlines after being placed in court-ordered receivership.

All the gritty details were originally reported by the CBC back in April. Now, condo buyers who found and purchased their not-yet-built dream homes as far back as 2011, could well find themselves priced out of the 2017 Toronto housing market altogether.

We compared condominium apartment prices from 2017 and 2012. The average condo in the City of Toronto sold for $318,600 in January 2012. As of June 5, 2017, that price was $477,600 – a difference of $159,000 (source: Toronto Real Estate Board). That's gotta hurt.

This begs the question, why do people purchase pre-construction? That's a lot of money to put down on a plan and a promise that it will be built in a few years.

RICHARD LAUTENS VIA GETTY IMAGES

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The rewards

"Timing is everything when it comes to purchasing," says Barbara Lawlor, president of Baker Real Estate Inc. "Particularly, when in the marketing cycle you choose to sign on the bottom line can affect everything from your lifestyle to future resale value. For example, if you purchase from plans early in the cycle, you will get the best price and selection of floors and suites."

The lower price and greater choice afforded by the pre-construction phase is certainly a big selling point, especially in Toronto's hot housing market. But not everyone's buying into the idea.

"For some buyers, seeing the finished product eliminates any doubts they may have," Lawlor points out. "We notice a rise in sales once construction begins. People often experience peace of mind, knowing the developer has secured enough sales to obtain financing and begin the construction process."

"I have seen many instances where the unit as finished is not what the purchaser envisioned."Jonathan Fine, Fine & Deo

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The risks

"Be aware that you are buying from plans and there is usually a provision in all agreements that permits a declarant to change the plans for various reasons," warns Jonathan Fine, condominium specialist lawyer with Fine & Deo. "I have seen many instances where the unit as finished is not what the purchaser envisioned. There may or may not be recourse, depending upon many factors. Make sure that anything important that a sales person has told you is in writing. Otherwise, it is not necessarily part of deal."

Fine also cautions that "it has happened in the past, usually where there is a hot market like we see presently, when, for example, inexperienced 'would-be' developers enter the market."

How do you avoid this scenario? Cosic's advice to prospective homebuyers is simple: research your builder.

Fine adds, "Read and understand the disclosure statement, the proposed condominium documents and the proposed budget statement. Finally, remember that you have a 10-day cooling off period during which you should consult your lawyer."