Selling your investment condo before registration is no straightforward proposition, says real estate broker Adam Brind, in this his first Ask the Expert column for CREW Online.
Your Question:
Hi, Adam, I have put a deposit down on my second investment condo in toronto. it’s a highrise in the King West area, just east of Liberty Village, in Toronto. The developer was supposed to finish construction by next summer. I am wondering if it is better to sell pre-occupation or hang onto the property for rental opportunities. If I bought at $300k will I get that back or is the market so changed at this point that flipping isn’t an option?
Thanks,
Sheena
Adam’s Answer:
Hi, Sheena, and thanks for the great question and congratulations on the purchase.
There are a number of factors that we should consider. First and foremost, I think it is important to consider your original motivations and the type of investor that you want to be — growth or income? If you bought this property as a growth vehicle, then flipping it might be a good idea if the numbers make sense. But, if your goal is to build a long-term, sustainable portfolio of income properties, then this might be a great start.
Secondly, we need to consider the tax implications of selling the property before registration or ‘assigning’ the original agreement of purchase and sale. The biggest issue with selling before registration is that you run the risk of being hit with an HST bill from CRA. In order to avoid this, you must use the property as your primary residence or rent it out for at least one year (and be able to prove it). You would have been required to disclose this to the developer upon purchasing the property. This is because the HST rebate is typically built into the purchase price and only available to the developer if you meet the requirements. This can be a costly mistake — upwards of $30,000 in some cases. In addition, you need to contact your accountant and strongly consider the tax implications (capital gains tax) of selling an investment property.
Lastly, selling a property as an assignment can be very difficult from a liquidity perspective even if your developer will allow it. And even if they do, they will typically charge an administration fee upwards of $5,000.
All of these details as well as your personal circumstances should be considered before you make a final decision. My advice is to think about making it your primary residence so you can enjoy it. Good luck!
Adam
Real estate broker and investment property specialist Adam Brind is principal of CORE Assets – Remax Condos Plus in Toronto. He’s also CREW online’s Realtor expert. What’s your question?
