With the Toronto real estate market continuing to grow exponentially, more and more people are finding that condos – with their more accessible price points – make appealing investments. Whether these investors plan to live in the condo for a year or two, then rent it out when they move on to a larger space, or whether they buy the condo strictly for investment purposes, buyers need to know what they’re getting into, because condos can work a lot differently than the traditional ownership of a single family home.
Today, we’re going to look at what investors should know before they invest in a pre-construction condo. ‘Pre-construction’ generally means any time before a condo building is finished.
Pre-construction condos can often seem like good deals: Builders often offer pre-construction deals to early buyers; the deposit may be payable in small installments; and there’s often the promise of ‘customization’ that goes beyond just choosing the colour of your countertops.
But pre-construction condos also come with more risk than existing condos, because they simply don’t exist yet. And if you’re buying really early in the construction cycle, there may be nothing more than a big billboard and a sales center – the builders may not even have broken ground yet.
So how can you reduce the risk – and maximize the gain – of buying a pre-construction condo?
Research the developer
A big, established condo development company – the Tridels, Center Court, and Mintos, to name a few – is more likely to have the experience and capital to take a condominium project from zoning and permits right through to occupancy. Before you buy a pre-construction condo, do some research: Does the condo company have a good reputation? W/hat’s their history regarding construction delays, financing problems, zoning fights, etc.?
No condo developer will be perfect – construction delays happen to everyone – but a development company that has successfully weathered 10 or 20 years of condos is probably a better bet than with no track record.
Research the subcontractors
Big developers don’t do all the work themselves, of course – they hire subcontractors for specific parts of the project. It’s worth asking who those subcontractors are, and doing some research on them as well.
Location, location, location
In a hot real estate market like Toronto, it’s safe to assume that there aren’t a lot of ‘bad’ locations. But it’s worth noting that some locations are more appealing than others because of access to transit, entertainment or services, and that over time, the addition of a few condo buildings in an area previously dedicated to single-family residential homes will change the neighbourhood.
When you’re thinking about investing in a pre-construction condo – one that might not be move-in ready for another year or two – it’s worth doing some thinking about what the location is like now, and what else is going on in the neighbourhood that might change it by the time you take possession.
Get the measurements – and a tape measure
The more units a developer can put in a given building or on a piece of land, the more money they make. Blueprints and “artist’s renderings” can look beautiful, but many new condo buyers who bought pre-construction find, when they move in, that the place is smaller than they thought, or the fridge seems tiny or the oven won’t fit a holiday turkey.
If you’re new to condo buying, take some time to really understand the space you’re buying: Use a tape measure to map out your current appliances, bathroom, bedroom, etc. and map it against the plans for the new condo to get a feel for size.
Ask for the condo rules in writing
Condominium rules are not always the same: Some buildings allow pets, some allow pets under a certain size, and others are pet-free, for example.
Some buildings allow you to rent out your condo for as little as a month, while others prohibit renting your condo for anything less than 6 months or a year – and that will make a difference if you’re buying a condo with a view to making it an income property.
So before you sign any pre-construction paperwork, ask for a copy of the condo rules – and get them in writing, not just assurances from the person working in the sales office. (If they don’t have these rules ready to go in the pre-construction phase, that may be a red flag about the competence behind the project.)
Bottom line? The Toronto condo market is hot and is likely to continue to be – but that doesn’t mean that you shouldn’t do your due diligence when buying a pre-construction condo.