8 Reasons to Invest in Pre-construction Condos

You may be wondering if a pre-construction condo is a good investment, or perhaps you’re asking, ‘Are condos a good investment?’ Well, you’re not alone! Many first-time buyers are drawn to the potential of pre-construction opportunities. Think of buying a pre-construction condo as planting a seed that will grow into a valuable asset over time.

Not only do you get to be involved in creating and customizing your own living space, but you’re also investing in a market with solid growth potential. But that’s just scratching the surface—let’s dive deeper into all the fantastic reasons why investing in a pre-construction condo might be the best decision you make!

Key Points

• Pre-construction condos allow you to buy a property before it’s built, offering a chance to lock in current prices.
• These properties often come with extended deposit plans and no mortgage payments until you move in.
• Investing in pre-construction condos can lead to significant property appreciation and rental income potential.
• There are risks like potential delays, market fluctuations, and additional costs, but these are often manageable with proper planning.

What Is a Pre-Construction Condominium?

A pre-construction condominium is exactly what it sounds like—a property you purchase before it’s even built! This means you’re buying directly from a developer, often before construction has begun. 

Buying a pre-construction condo is all about future potential. It’s like purchasing a blank canvas that will eventually become a modern living space tailored to your preferences. Plus, you’re often given time to arrange your finances, as these properties are typically sold with a longer completion timeline, giving you a chance to save up and plan ahead.

Why You Should Invest in a Pre-Construction Condominium?

Investing in pre-construction condos can be a smart move, especially if you’re looking to capitalize on future growth and appreciate the thrill of being involved in the creation of your home from the ground up! Here are 8 reasons you should invest in the best pre-construction condos in Toronto.

1. Extended deposit programs

Unlike resale properties where you typically need to put in a hefty down payment all at once, pre-construction condos offer a much more manageable approach. With a pre-construction condo, you usually only need to provide 15% to 20% of the final purchase price as a deposit, but the good thing is you can spread this deposit out over several months or even years. 

For example, you might make an initial deposit when you sign the agreement and then follow up with additional payments over the next 18 to 24 months. This extended deposit structure gives you time to budget and save without the immediate financial strain.

This way, you can easily invest in a preconstruction condo in Toronto or anywhere else without needing a huge sum of money upfront. It’s like having a payment plan for your future home, which can be especially beneficial if you are a first-time buyer. Plus, the best developments usually take 3 to 5 years to complete, so you’ll have plenty of time to prepare financially and secure a great deal.

2. Lock in Today’s Prices

One fantastic reason to consider a pre-construction condo is the opportunity to lock in today’s prices. When you buy a pre-construction condo, you’re essentially purchasing at the current market rate, even though the condo might not be ready for several years. 

According to The Canadian Real Estate Association (CREA), the national average home price is expected to rise 2.5% in 2024 and 5% from 2024 to 2025. So, as an investor, when your property’s value increases over the next few years, you will end up owning a home that’s worth significantly more than what you paid for it. 

Plus, buying now means you avoid the potential bidding wars and skyrocketing prices often associated with the resale market. This price stability gives you peace of mind, knowing that you won’t be caught off guard by sudden market changes. 

3. Enjoy a passive investment 

As an investor, one of the best things about buying a pre-construction condo is that you don’t have to worry about managing your portfolio, tracking market changes, etc. You KNOW, the market for real estate is always growing and you can just sit back and relax while your new home is being built. 

From the moment you sign the agreement, the responsibility for construction, maintenance, and management rests with the developer. This means you won’t have to worry about dealing with contractors, unexpected repair issues, or the general headaches associated with managing a property.

Plus, all pre-construction condos in Toronto come with a Tarion warranty and most include maintenance packages that cover everything from appliances to structural issues, providing you with peace of mind. 

4. Watch Your Investment Grow

Investing in a pre-construction condo offers the exciting potential for significant property appreciation over time.

The Canadian residential real estate market is on the rise, with projections showing it could reach a staggering US$6.55 trillion by 2024. Looking further ahead, it’s expected to grow annually by 4.26% from 2024 to 2029, pushing the market volume to an impressive US$8.07 trillion by 2029.

According to the Teranet – National Bank of Canada Index:

• In the first quarter of 2024, house prices in Canada’s eleven major cities increased by 4.51% compared to the previous year. 
• This marks a strong comeback from a 4.62% decline in the prior year.
• Adjusted for inflation, house prices experienced a real increase of 1.56% year-over-year in Q1 2024.

Here’s a look at how house prices changed in Canada’s major cities during the year to Q1 2024:

5. Enjoy Tax benefits

Investing in a pre-construction condo comes with some unique tax perks that can make a big difference in your financial planning. For starters, in Canada, only 50% of capital gains are taxable when you eventually sell your property. This means that half of the profit you make on your condo won’t be subject to taxes, which can significantly boost your returns.

Additionally, many expenses related to owning the property, such as mortgage interest, property taxes, and maintenance costs, may be deductible from your taxable income. This can help lower your overall tax burden, particularly if you are using the property as a rental or investment.

And finally, since the condo isn’t technically completed yet, it doesn’t immediately show up on your credit report, giving you some flexibility if you’re considering other financial moves. 

6. No Mortgage Until Move-In

Another great advantage of buying a pre-construction condo is that you don’t need to start paying a mortgage until the condo is ready for occupancy. This gives you a few years to save money, plan your finances, and prepare for the future without the pressure of monthly mortgage payments.  During the construction period, you only need to cover the deposit installments, which are spread out over time. 

7. Embrace Modern Living with Cutting-Edge Tech

One of the biggest draws of investing in a pre-construction condo is the opportunity to live in a home that’s at the forefront of modern design and technology. 

New construction homes often feature state-of-the-art amenities, such as smart home systems that allow you to control lighting, temperature, and security with just a tap on your smartphone. These tech-savvy features not only enhance your living experience but also contribute to energy efficiency and convenience.

The modern design elements, including sleek finishes and open-concept layouts, ensure your home is both stylish and functional. 

You’ll enjoy contemporary aesthetics and innovative features not typically found in older properties. Moreover, since everything is brand new, you can avoid the usual repair and renovation headaches that come with older homes. There’s no need to worry about outdated systems or potential maintenance issues.

8. Rental Income Potential

Last but not least, investing in a pre-construction condo also opens the door to rental income opportunities. Once your condo is completed, you can rent it out to generate steady, passive income. New condos are highly attractive to renters due to their modern amenities so you’ll have no problem finding quality tenants willing to pay premium rates. 

According to CMHC, rents in the purpose-built rental market surged by 8% last year which shows the strong rental demand. Even condo units without the security of purpose-built rentals are doing well in the market.

Looking ahead, the Housing Market Outlook (HMO) suggests that between 2024 and 2026, many households will find it tough to afford homeownership, which will drive even greater demand for rentals even further. 

With population growth and newcomers typically renting first, rental markets will remain competitive. This steady rental income can cover your mortgage, property taxes, and other expenses, turning your condo into a profitable investment! 

Are There Any Risks in Buying a Pre-construction Condo?

Of course! Just like any investment, buying a pre-construction condo comes with its own set of risks. But don’t worry—most of these risks are manageable or avoidable with a bit of planning and working with reputable developers. Here are a few things to keep in mind:

Potential Delays and Cancellations

Pre-construction properties often have longer timelines than resale homes and may face delays, sometimes lasting several years. There is also a risk that the project could be canceled. In such a case, your deposit would be returned, but you might miss out on other opportunities. Additionally, rising market prices could make finding a similar property more challenging.

Housing Market Fluctuations

If the housing market cools down after you’ve purchased a pre-construction condo, the final appraisal might be lower than expected. This means you could be responsible for covering the difference between the mortgage amount and the purchase price. So, it’s always a good idea to research local market trends and nearby developments to ensure you’re investing in a growing community.

Mortgage Rate Changes

Changes in mortgage rates between signing the contract and closing can impact your eligibility. A rise in rates might mean you no longer qualify for the mortgage you anticipated, putting your purchase at risk.

Contract Flexibility

Exiting a pre-construction contract can be costly, often requiring you to pay assignment fees ranging from $5,000 to $15,000.

Buying Based on Plans

When purchasing a pre-construction property, you’re buying based on blueprints, which can make it difficult to visualize the final property or the neighbourhood’s vibe. The end result may differ from your expectations, particularly in newer, uniform subdivisions.

Higher Down Payments and Additional Costs

Pre-construction properties typically require a higher down payment—usually 20%—which can be a hurdle for some buyers. Additionally, new developments are subject to HST, unlike resale homes, which can add to the upfront costs for investors.

Bottom Line

Investing in a pre-construction condo can be a rewarding long-term investment, allowing you to secure a valuable asset without the stress of a large upfront cost. Although there are some risks, such as potential delays, these can be managed with careful planning. This is especially true when you choose reputable developers and focus on properties in vibrant, growing communities.

And that’s where we come in! Our team has strong connections with the best developers across Canada, offering you VIP access to the newest listings, exclusive promotions, incentives, and detailed floor plans. Reach out to us today, and let us help you find your perfect home or investment property!