5 Tips to Find the Best Pre-Construction Project for You
Written by Abigail Adu & Jaya Anandjit
Whether you’re looking to move in upon completion or use your unit as a rental investment - buying pre-construction is never a bad idea if you choose the right project.
Multiple variables contribute to picking a project. Budget, location, and builder reputability are at the top of the list, but with these key markers there’s also the general incentives of pre-con that make it a top choice for Investors.
Real estate investors typically chose pre-construction for the following reasons:
Buying pre-con means you’re investing in the project during the early development stages, giving you access to exclusive prices that will likely appreciate throughout the building phase
Deposits are usually split up and paid over the first few years of construction, giving you space to budget accordingly
You have many options for assigning, selling, or leasing your unit before or after developments are complete
While these are all great reasons to add pre-construction to your real estate investments portfolio, there are a few things to consider before committing to a specific project.
Here are the top 5 things to look out for when choosing the best pre-construction project for you!
Pick a Reputable Buyer Before Anything Else
Location, amenities, and special features look great on paper, but they’re worth pennies if your project is in the hands of a builder with a shady track record. So before you look at anything else, the first step to finding a credible pre-con is working alongside your real estate agent to research the builder behind any projects of interest.
Best practices for choosing a reputable builder include:
Look at their previous success – you want a builder with experience completing projects similar to the one you’re considering
Find out the length of the occupancy period – does the builder have a past of (un)timeliness
What are the incentives – is there an incentive package?
Are there financing options – what are your payment options, and which one fits best with your needs
Have they had any mishaps with past construction projects – how might it affect you if this happened to the project you’re interested in?
How have their previous pre-con projects performed after closing – are there any complaints or notable pitfalls with their past projects?
Remember – you’re putting your trust and money into the builder. Ensure that you feel comfortable and confident in their plans before you commit!
2. Consider the Post-Construction Target Audience
If you’re looking at pre-cons as investments to sell or lease upon completion, take some time to consider who might be interested in purchasing or renting the property based on the location, amenities, and unique features. Due to supply and demand, it’s rare that seller’s don’t find eligible buyers and renters, but it’s wise to consider how rental or selling costs, location, and amenities can influence the type of buyer you’ll attract.
Consider the following:
Say you are looking to invest in a pre-con project so you can assign it before completion or sell it upon completion. You choose a 1 Bed 1 Bath in Brampton, Ontario. Your buyers would likely be an individual or a couple rather than a family given the unit structure. The condo is located near a large park with several community-faced amenities, close to public transportation and major highways.
You’re looking to sell your unit for around $550,000. What would compel a couple or solo buyer to purchase your unit? Perhaps they work close by… maybe they go to school in the area… or perhaps they’re interested in buying your unit so they can rent it out.
While you’re committing to your pre-con for a future profit, your buyers will be looking for a desirable property that meets their needs. How advantageous is your property to those prospective eligible buyers, and who will you need to connect with to sell your property when you’re ready? What might the market look like when you’re ready to sell – are there competitors that might better meet the needs of your target audience with a lower price, better location, or additional high-value amenities?
This is where location and amenities become relevant. Many agents will advise you to invest in any appealing-looking project for the sake of holding an attractive investment, but you must consider how your property will perform once you’re the seller rather than the buyer!
3. Verify Assignment Eligibility
Suppose you are more than halfway through construction, and you’ve put approximately 20% down on your pre-construction unit. However, a financial emergency has suddenly come up and you’re in need of those funds….
In comes the assignment clause.
Assignments occur when you sign off your agreement of purchase and sale to another buyer before construction is finished. If you assign your unit, you can successfully receive your deposit back and possibly profit from any appreciation on the property.
Some projects offer free assignments, but there are assignment fees in other cases, or the builder may not allow assignments until they’ve sold a particular percentage of units (usually around 90%).
Pre-construction projects take years to finish, and the future is unpredictable. Therefore, be sure that your builder allows assignment sales to avoid any complications that could arise from having your funds locked in until the closing period.
4. Know Your Closing Costs
Closing costs tend to add up as the building phase progresses, so it’s vital that you clearly understand exactly what you’ll be paying for from day one to the closing date.
During the 10-day cooling period, ensure that your real estate agent and a reputable lawyer review your APS to ensure your closing costs are capped. Do your due diligence to ensure that you can budget accordingly and fairly pay for what you’ll receive once the deal is closed.
5. When is Interim Occupancy and Final Closing?
Interim occupancy is the period before closing during which you can move in – meaning you don’t completely own your unit yet, but you have the key, and you can occupy the space. This usually occurs around six months before the final closing. During this time, you may be able to begin renting out the space (confirm if this is allowed in the APS), and you’ll likely have to pay an interim occupancy fee to occupy the unit before the condo is fully finished and registered.
The final closing is when the builder officially registers the condo with the City, and the bank pays the builder the 80% balance to start your mortgage. At this point, you’ll receive the title for your unit, and all closing costs are to be paid (i.e. property taxes, land transfer tax, legal fees, and any other expenses in the APS).
Before you commit to a pre-con project, be sure that you know when these two dates are to accurately prepare a financial plan that highlights the impact of costs in the closing year.
Buying pre-construction can be a great way to start or add to your real estate investment portfolio while simultaneously building a passive income. New condos can be highly attractive to buyers or renters since they have several amenities and special features that resale properties don’t have. Considering builder reputability, location and market value, assignment eligibility, and closing procedures can take your pre-con project from being a simple investment to a smart investment. All it takes is the right choice to set you on a growing path to real estate wealth development!
Interested in taking the next steps to find a pre-construction project that meets your investing needs? Click the link below to schedule a call – together, we can build a Real estate Action Plan that strategically highlights your goals and capabilities within the market.
