Unlock Your Future: Explore Pre-Construction Property Investment Opportunities

Author : Emily Jackson | Published On : 25 Apr 2024

Are you an investor looking for lucrative opportunities with high-profit potential in the Ontario housing market? Then, you must have probably heard about or come across the concept of pre-construction homes. In recent years, pre-construction properties have become quite a hit among savvy investors.

In a pre-construction property investment, you buy a property before it’s built and can enjoy a host of advantages, making it a compelling investment choice. However, alongside the advantages, investing in a pre-constructed property comes with certain disadvantages.

Below, we will delve deep into the upsides and downsides of investing in a pre-construction property to help you decide if this investment opportunity is best for you or not. Let’s begin!

What Are Pre-Construction Properties in Ontario?

As stated above, a pre-construction property is a house that is bought before it’s built. The buying decision is usually made based on the architectural drawing, and floor plans sold by the building developer or real estate agent.

The purchase process for a pre-construction property is different from that of an existing home. Instead of paying the full price or getting a mortgage loan and then moving in, the process of buying a pre-construction property is a little more staggered.

First, you have to seal the deal on the pre-construction property with a deposit which is typically a percentage of the final purchase price. This deposit guarantees your ownership of the pre-construction property. After that, you have to make instalments at various construction stages such as the completion of the foundation or the roof.

The final payment which is the remaining balance of the purchase price is typically made upon completion when the property is ready for occupancy. Once this step is completed, you’ll officially become the owner of the pre-construction property.

Pros of Investing in a Pre-Construction Property

1. Option to Sell Before the Closing

With pre-construction properties, you have the option to sell before closing. This way, you only have to put a small portion of the total value in the investment and can benefit a lot from its appreciated value. This is called an assignment sale.

An assignment sale allows you to take advantage of 3 to 4 years of price appreciation and avoid the closing costs and land transfer taxes. These will be paid by the person who will finally own the unit when the building has been completed.

2. Save for the Down Payment at Your Own Pace

In a pre-construction property, you’ll be paying the down payment throughout the building’s construction stages rather than in one lump sum amount upfront. So, you have a longer time to save for the down payment of your investment.

20% is the typical down payment amount required for pre-construction projects. The deposit structure is spread out over the course of 3 to 4 years, usually in 5% instalments.

3. Get Your Hands on a Brand New Building

With pre-construction properties, you get a brand new home and everything that comes along with it - new appliances, new finishes, and so on. So, you get to enjoy the property in the best shape it’s ever going to be in. And because it’s a new building and everything is in tip-top shape, your maintenance expenses are also going to be low as compared to older buildings. There won’t be much to fix and repair in the new property because everything will be brand new.

4. Increased Rental Income Potential

A newly constructed property often commands a higher rental rate than an older property because of its modern features and amenities. These properties are also located in a desirable area near public transit options, cafes and restaurants, top schools, and other amenities, further amping up its rental value.

5. High Potential for Price Appreciation

Renters and homebuyers prefer the modern features and amenities that come with newly built properties. Energy efficiency, open floor plans, and trendy finishes - all these features make pre-construction properties more appealing than an old property with old appliances and fixtures. Because of this, new construction properties may appreciate in value significantly than older properties.

Cons of Investing in a Pre-Construction Property

1. Unable to Move into the Property Immediately

In a resale property, you get to own the property in a matter of weeks or months. However, in pre-construction properties, you have to wait for years waiting for the property to be completely built. Depending on the builder and the construction stage, this can take up to 4 to 5 years. Also, there is a chance of unexpected delays in newly constructed properties because of labour shortages, or financial issues.

2. Involves Higher Risk Than Established Properties

Investing in pre-construction properties involves more risk than putting your money in established properties. This is because of the uncertainties surrounding the construction process and rental demand. This risk associated with newly constructed properties can be too much to take for a risk-averse investor.

3. More Expensive Than Established Properties

Pre-construction properties have a higher price per square foot than an established property. This is because, in a pre-construction property, you’re essentially paying for the potential of future value. Pre-construction property developers price their projects based on anticipated market appreciation by the time construction is complete.

4. No Cashflow for a Long Time

On a resale property, you can buy the property and start renting it immediately to earn a monthly income. However, in a pre-construction property, you won’t be earning any income until the property can be lived in or rented out. If this sounds against your investment goals, a pre-con property may not be for you.

Investing in a Pre-Construction Property: The Final Call Rests with You

As you have seen, investing in a pre-construction property is laden with potential rewards and risks. So, whether investing in a pre-construction is the right investment decision for you or not depends on your goals and priorities.

Understand the pros and cons, conduct thorough research, and consider your personal circumstances, and tolerance for risk before making a decision. You also need to seek advice from real estate experts who can provide you with tailored guidance based on your specific situation.

In the ever-evolving world of real estate, pre-construction properties present a lucrative opportunity to investors. Those who can weather the risks that come along with this investment stand to benefit immensely from a high return on investment.