Pre-Construction vs. Resale Condos: What’s the Difference?
It can be a challenging time for those looking to buy a home because of the nation’s housing shortage. Canadians are concerned about whether they will ever be able to afford a home due to the skyrocketing average price of homes over the past ten years. But one of the safest investments you can make is real estate investment, and it always has been.
Choosing between a pre-construction condo or a resale condo when looking to purchase a condominium is a difficult choice that every buyer and investor has had to make. Although we are unable to make your decision for you, we can let you know the advantages and disadvantages of each option. So, when the time comes for you to buy a condo, you will be ready and sure of your choice.
For those looking to purchase a home, the current housing shortage in the nation can be unsettling. Canadians are concerned about their ability to buy a home in the future due to the skyrocketing average price of homes over the past ten years. The safest investment you can make, though, is and always has been real estate.
Every buyer and investor looking to purchase a condominium has had to make the difficult decision of picking between a pre-construction condo or a resale condo. Although we are unable to make your decision for you, we can let you know the advantages and disadvantages of each option. You’ll be prepared and assured in your choice when the time comes for you to buy a condo if you do this.
- Defining Difference.
- Dates for Closing.
- Options for renting.
- Place Is Important.
Difference according to Definition.
When choosing between the two possibilities, it is crucial to comprehend what pre-construction and resale mean.
Pre-construction, by definition, refers to a condominium that has not yet been built and is not yet a movable possession that can be immediately occupied or rented out. Pre-construction also entails that you’re the first buyer, purchasing at the lowest price and realizing the first and greatest profit. When you invest in pre-construction, you are planning for the future, which means you are thinking about future growth, rental income, and appreciation. Additionally, when you buy pre-construction, the developer is who you buy the unit from. Investors can avoid visiting individual resale condos in person and engaging in time-consuming back-and-forth negotiations by purchasing new pre-construction.
On the other hand, you buy a resale condo directly from the owner. The original owner who bought this unit during the pre-construction stage has already realized the greatest return on their investment because it has been occupied. An expert property inspection is necessary when purchasing a resale condo because the transaction must be handled through the representation of a licensed real estate agent. Reselling also comes with the possibility of haggling or engaging in bidding wars.
When comparing the two, new versus used for anything is always more valuable because people prefer brand-new goods to used ones. Therefore, purchasing pre-construction ensures that you not only get a brand-new unit but also that you pay the lowest price, get a higher rent, and get the best return on your investment.
The end date.
The phase of the buying process known as the Closing Date is when you receive ownership and the title to your new residence. The closing dates are the same whether you buy a pre-construction or a resale condo; the only difference is when.
Your closing date for a pre-construction condominium is years away and consists of two phases: the interim occupancy phase and the final closing phase. These phases take place a few years after you sign your Agreement of Purchase and Sale, giving you time to accumulate savings and apply for a mortgage, which is necessary once you reach the Final Closing Phase.
When you purchase a home used, you must make the down payment right away and can reach your closing date in as little as a few weeks. Not only that, but you also need to apply for a mortgage right away. For people who are not financially prepared, this can be challenging.
Pre-construction may be preferred over a resale by investors who require more time to secure a down payment and a mortgage. A longer deposit structure that allows the down payment to be paid over a number of years may also be offered by developers as an incentive. Normally, when you purchase a condo unit in the pre-construction stage, you will typically put down 15% within 15 to 18 months of signing the Agreement of Purchase and Sale and the final 5% at occupancy, giving you more time to prepare financially. However, with extended deposit structures, developers will extend your payment schedule so you can pay off your deposit within 18 to 24 months of the agreement’s signing. This gives you more time to put money aside and gradually pay back your deposit.
Pre-Con can experience delays or cancellations, which can result in lost time, just like with any investment. The good news is that if you do your research and find a reputable and trusted developer, you can stay away from these competitors. You can be sure that a Platinum Agent who specializes in pre-construction will assist you in finding the ideal unit from a reputable developer by working with them.
Obtaining a passive income is a common goal of real estate investing for homebuyers. The ability to rent your condo, however, differs between pre-construction and resale.
Until you reach the Interim Occupancy stage, as was previously mentioned, you won’t be able to rent your property. Prior to that, you are unable to rent your property because it is neither a tangible asset nor a place that the municipality deems safe for habitation. If the developer grants permission and you have the “Right to Lease During Occupancy” clause in your Agreement of Purchase and Sale, you may, however, lease your property after you reach Interim Occupancy before Final Closing.
Pre-construction costs are paid in the current purchase market price, but they are repaid in the subsequent rental market price. Rental rates have increased at an average annual rate of 4% over the previous ten years, and we anticipate that trend to continue. You must predict your rental income several years in advance for pre-construction properties. The good news is that during this time while you wait for construction to be finished, the value of your condo will keep rising.
After the Purchase and Sale Agreement is signed, the condo may be made available to the investor through resale in just a few months. Those who purchase resale properties, as opposed to pre-con, can set their prices based on the going rental rates in their area. Investors who are ready to begin renting properties and generating passive income right away are benefited by this choice.
Everywhere you look, the location of your property matters. Regardless of whether you’re thinking about pre-construction or resale, it’s crucial to do your research on the neighborhood. The two choices, however, still have significant differences.
More homework is needed before making a pre-construction condo purchase. In areas that are either underdeveloped or that will develop further in the future, new construction is typically located. Selecting a location in a developing neighborhood enables you to buy your condo for a lower cost, where you will experience significant appreciation as the neighborhood develops. The objective is to make investments in a neighborhood that is expected to increase in population, employment, and housing.
Reselling means giving up the chance to see your property’s value rise over a long period of time. The neighborhood where you are investing is already well-established, so growth there won’t change significantly over the next few years. However, it enables you to pick a neighborhood with a good reputation.
You must also take the extra expenses involved with each into account when choosing between a pre-construction condo and a resale.
High maintenance costs, which can be more expensive in resale condos because the amenities and common elements are older, may be avoided with pre-construction. In contrast, when purchasing a pre-construction property, you are obligated to pay final closing costs, which may include land transfer tax, property tax, and levies such as development charges and park levies as well as the remaining down payment.
Closing costs for resale condos will always be lower than those for new construction, but maintaining older units entails additional costs. Resale units also come with higher maintenance costs due to the aging building’s need for repairs. Due to the fact that people prefer new construction over used units, resale condos don’t appreciate as much as pre-construction ones. Since renters prefer contemporary finishes and the newest features and amenities, you might end up paying more for repairs and renovations.
The Future is Bright for Investors
The real estate market will likely continue to rise at both the federal and provincial levels of government. Although the Greater Golden Horseshoe used to see horizontal real estate development, Places to Grow Act initiatives now prioritize vertical development. As a result, mixed-use condominiums are now the main focus instead of low-rise houses. Condominiums are, in other words, the future. Furthermore, condos are better suited to house the expanding population in areas near employment and transportation due to the rise in immigration and population growth as well as affordability issues.
Pre-construction investments give you an advantage over the competition because they enable you to get a unit for the best price with a high rate of return. Undoubtedly, it carries risks, just like any investment, but the benefits are what make it worthwhile.
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