Pre-construction investing is one of the best ways to build wealth

Real estate prices are driven by supply and demand.  We are seeing rapid population growth across Canada and specifically in the GTA, which in turn drives housing prices up.  Investing in real estate is both a safe investment and a great way to stretch your capital dollars.

Buying a condominium unit (or house) in the pre-construction phase is a low cost way to enter the real estate market.  The purchase agreement gives you the right to buy the condominium or house when it is built in the future but you can lock down today’s prices and take advantage of any price increases in the real estate market during the construction phase.

Builders generally need to pre-sell 75% of a development before they are able to get financing to break ground.  By purchasing a unit in the pre-construction phase you are securing the best price point and your choice of unit (by examining the floor plans).

Pre-construction contracts tend to be lengthy with not much room for negotiation, but here are three things you will want in your contract:

1. Right to assign:
   You want the right to assign your agreement of purchase and sale to a new buyer without penalty before the original close date.  This will allow you to purchase multiple units and flip them prior to closing without ever having to fully finance the purchase.
   

2. Right to lease during occupancy:
   Title will not be transferred until the building is entirely finished. There will be an interim period between when your specific unit is completed, but before title is transferred, where the developer will start charging you an occupancy fee.  For example, a unit on the 5th floor will be complete before a unit on the 10th floor. You will want the right to lease your unit during this time, particularly if you are buying one or more units for investment purposes. 
   

3. Caps on the development fees:
   Municipalities have dramatically increased their development charges, so it is important to get a cap on the fees so there are no surprises at closing.

1. Lowest price point
   By investing at the developer launch you secure the best price and avoid any bidding wars.
   

2. Staggered payment & leverage
   Pre-construction offers you a staggered deposit structure that will allow you to leverage your investment and get in the market while continuing to save up to the closing date.

   A typical deposit structure is as follows: $5,000-$10,000 down on signing the pre-construction purchase agreement, followed by 5% increments depending on the developer’s payment schedule (often 5% at 30 days, 90 days, 180 days and upon completion) for a total of a 20% deposit.

   You are only paying a 20% deposit, but your investment is appreciating based on the full purchase price. 
   

3. Customization
   You will get the opportunity to work with the builders to customize your finishes and pick any upgrades. 
   

4. Cooling off period
   Under section 73 of the Condominium Act, purchasers are given a 10-day cooling off period.  During this time period you can walk away from the deal with no repercussions.  This gives you time to get your financing in order and speak with lawyers.
   

5. Warranties
   Canada offers many warranties that will protect you from things such as cost of repairs and structural defects.

1. Delays
   In general, most developments take 3-5 years, but developers can face lots of unexpected delays, which can postpone occupancy.
   

2. Hidden Fees
   Educate yourself so you are not blindsided by closing fees.  These fees will likely include: occupancy fees, legal fees and land transfer taxes.