New Condo Purchase: Pre Construction or Resale?

Toronto Condos are quickly becoming one of the cities hottest commodities. It seems every month there are plans laid out for a new project in or around the city. With real estate pricing continuing its seemingly an unstoppable upward trend, many first-time buyers and investors alike are turning to Condos as an entry point into the GTA market. When exploring a new condo purchase, there are two options to consider: Pre construction or Re-sale. A pre construction condo is a brand-new unit with no previous owners or tenants. A resale property has a history of past owners or inhabitants. Upon initial consideration, it may seem like pre construction is the obvious choice; why would you want to purchase an old unit when you can buy a brand-new unit? Unfortunately, it’s far from being this simple. Both options provide clear-cut advantages and disadvantages. The right choice would depend entirely on the individual purchasing and their circumstance.  Here are some important factors to keep in mind:

Resale Value is one of the most important factors to consider when making your choice. Nobody wants to come out in the hole, and ideally, you’ll want to treat this purchase as an investment. That is the “American dream” after all. Generally, pre construction units are a better choice when it comes to resale value. With that said, nobody can predict the future of the market. If there is a crash, or a downwards trajectory, you may see that resale value disappear regardless. But pre construction projects are typically priced lower than the average resale unit, and will usually see an immediate increase in equity once the unit is finished and ready for occupancy. So, you’ll spend a little less in total, and may see an almost immediate rise in equity if all goes according to plan. However, price point and immediate equity are not the only factors to consider. You must look at overall value. Is the unit in a good neighborhood that has seen strong growth? Is the builder reputable? You’ll also need a realtor with a background in pre construction to determine if you’ve negotiated beyond just the price point: Did you negotiate a cap on builder’s fees? Did you negotiate upgrades to the unit? If you’re an investor whose main goal is a quick  turnaround, then pre construction is typically a better option. But it’s easy to make bad decisions in relation to pre construction; if you haven’t done your research and negotiated strongly, you can be left with the short end of the stick. Pre construction is a better choice only for a seasoned veteran who understands the ins and outs.

Down Payment is another important factor.  A pre construction unit will require a full 20% down payment, whereas resale units may require less upfront; some resale units can have you paying as little as 5% upfront. With that said, the 20% down payment on pre construction is broken into a series of smaller payments between the time of signing the deal and the day you move in (occupancy). So, you won’t be required to pay the full 20% in one shot, but rather over the course of a few months. If starting funds are an issue, you may need to consider resale.

Time Frame is arguably the biggest factor. If you need a place to live now, forget pre construction. Pre construction condos need to be built, and there are often time delays ranging anywhere from 6 months to a few years after the projected finish date; builders can delay for a plethora of reasons, and unfortunately, you move at their schedule. Resale will have concrete move in dates and you’ll typically be able to move in immediately after signing a deal.

Knowing Exactly What You’re Buying is the big one. With re-sale, you can see the unit before you buy it. You can inspect it, analyze it, envision how you’ll stylize and furnish it. It’s more of a “try before you buy” process, so to speak. Pre construction comes with the risk of not actually seeing the unit before you buy it. You are essentially buying based off floor plans. With that said, a smart buyer may be able to make small tweaks and additions to a pre construction unit’s floor plans, thus setting it apart from other units in the building and creating a potentially higher resale value. Moreover, there is no risk of wear and tear on a brand-new unit. With resale, you will have a better idea of what the space will look and feel like.

So, What is the Better Option? As I’m sure you’ve gathered at this point, there is no clear cut “better option”. This depends entirely on the individual and their needs. An investor looking for a quick return will likely consider pre construction. But they will need to be well versed leading up to the negotiations as to avoid being left with a dud of a unit. If you need a living space for yourself, however, resale is a much more straight-forward and reliable option. Ideally, you’ll see a nice return if you plan to live in the space for an extended period in any case.