Pre-construction condo vs resale: which should you invest in?

by Taylor Pipe on 22 Feb 2021

When it comes to purchasing a condo as a first-time home buyer or investor, there is a wide range of opportunities and benefits. However, when it comes to choosing whether or not to buy a pre-construction condo or a resale condo, things can get a little tricky. Either way, the condo market is thriving in Canada and you can get in the market with a good purchase price if you know where to look.

In real estate markets like Toronto, the average price for a stand-alone family home was just under $930,000 as of December 2020 whereas the average price for a condo in Toronto was just over $660,000. For someone looking for a first-time home or an investment property, they could save almost $300,000.

"The pros of it for most first-time buyers it's more affordable," said Matt Elkind, Managing Director and partner at Connect. "The reality is, if that's what your budget allows for, then you're going to do [better with] a condo. And with that being said, depending on your lifestyle there's a lot of advantages to living in a condo."

Purchasing a condo unit comes with its pros and cons, like occupancy fees, carrying costs and living in a dense high-occupancy housing community. You'll also need to pay the amount of land transfer taxes on a condo that you would on a single-family home.

Investing in condos is a great way to break into the real estate market, but once you choose to go with condos instead of homes, you have to look at the benefits and disadvantages of choosing a pre-construction or resale unit.

The benefits of pre-construction

One of the main benefits of buying a condo during its construction phase is that it's cheaper than a resale model. When you buy pre-construction, you're taking the risk of your new condo not being built on time due to delays.

Another benefit to this is that you're getting on the on-sale price before the condo is built, so you're the price you're paying will be less than that of people who are buying a new condo after the construction phase. So the market value of your condo is already increasing and working for you!

"You know if you're buying today you're buying an asset. You're buying something in 2025 [but at a] 2021 price," Elkind said.

 

Pre-Construction Condos

Another huge benefit to buying a pre-construction condo is that you get to choose a floor plan and your own specific finishings since your condo hasn't been built yet. Typically, developers let buyers choose their own flooring and fixtures to give their new condo a personalized touch. However, certain finishes may be pricier than you anticipated so keep your eye out for any product that looks great, but can also save you money (like laminate flooring that looks like real wood for example).

"It's a very passive investment," Elkind said. "You don't have to deal with tenants and there's nothing that you need to do until the condo is ready."

The benefits of buying resale condos

Obviously, everyone wants brand new condos they can be the first to live in, but resale properties offer the opportunity to move into your condo much sooner than a pre-con. For resale condos, you'll probably need a mortgage since purchasing these units isn't the same as buying a condo during the building phase. However, interest rates are at an all-time low in Canada, which means it's never been a better time to look into real estate investments.

Resale condos also offer the opportunity for great liquidity, meaning you can do whatever you please with your condo as long as you follow building guidelines. This is specifically appealing to investors who want to invest in a rental property as you can immediately move in yourself, or rent it out and start seeing an immediate profit.

 

A Resale Unit In Toronto

"In most areas like in Toronto, if you pay a million and a half dollars for a home on the rental market you will not be cashflow positive," Elkind said. "Whereas on the condo market, in a normal rental market, you have that opportunity."

Pre-construction real estate investment properties

When it comes to paying for pre-construction condos, it works a little differently than buying a single-family house or resale condo. The pre-construction market in Ontario only requires a 20% down payment compared to other markets in Canada where you have to pay from 50-100% of the cost of the property upfront.

Unlike a mortgage, you don't even have to pay the whole down payment right away. Buying a pre-construction condo gives you the freedom to pay your down payment over the course of the first year of ownership, which means you have more time to come up with the down payment before they start building your brand new condo. This is especially appealing for first-time buyers who are looking to break into the real estate game or are just looking to upgrade from their current unit.

Selling a pre-construction condo

As the owner of a pre-construction condo, you technically can't sell your pre-construction condo because it hasn't been built yet. Sometimes it can take years to build condos and your plans change, or you're looking to put money into a different investment opportunity. An option to get around selling your investment condo is to actually sell the contract for your pre-construction condo.

This means that as the owner, you can sell off your condo unit but the buyer has to agree to the same terms and purchase price that you already agreed to. Basically, they have to be alright with what you've already agreed to in terms of condo developments, tax implications, closing costs, occupancy, maintenance fees and any other things you may have agreed to when buying pre-construction units.

Using equity for a resale real estate purchase

Using equity to buy any condo is a great option for anyone looking to use their existing home equity for investment opportunities. Pre-construction and resale condos are both great options for those looking to use equity instead of taking out another mortgage, but in order to see a return on your investment immediately, resale is where it's at.

 

Using Equity To Put A Down Payment on A  Condo

"The price of real estate has gone up so much and people have a lot of equity, which is borrowing power in their real estate," Elkind said. "If you bought something for half a million dollars, and it's now worth a million dollars you have half a million dollars in equity that you can really access."

Using equity instead of a mortgage to purchase resale units works because your resale property can become a rental property and you can make money immediately from your investment. Waiting for developers to build pre-construction condos hinders your opportunity to see a return on your investment and that's the one thing you don't want to see as an investor.

Increasing resale value

Resale condos are also one way to flip your investment for a higher profit. Since they're already built, the value of your resale property will skyrocket because the need for housing in Toronto is soaring. This will ultimately lead to your resale property being worth more money if you flip it instead of renting it out and lets you pay off the balance on your mortgage thanks to the increasing market in Canada.

"I think right now the markets on fire and especially like once there's a major reopening, everyone's comfortable, the global confidence is returned and the disease is more contained we're going to see massive appreciation," Elkind said. "There's more money than has ever been on the sidelines waiting to come in right now."

Pre-construction vs resale: what makes sense for you?

 

Pre Construction Versus Resale

When looking at pre-construction vs resale condos, it's important to note the benefits of pre-construction condos. Typically, pre-construction condos give you the freedom to break into the real estate market at a slower pace than resale condos where you have to be ready with a large percent of the purchase price upfront. Construction and resale investment opportunities are abundant in Ontario and new buildings are springing up daily in the GTA and across the country.

Property developments in general are a safe investment. The question that remains is if condos are right for you, and if they are, what are the pros and cons of a pre-construction unit vs resale? One of the main things to keep in mind is when you're looking to occupy the unit. Obviously, pre-construction condos take time to build whereas a resale condo can be moved into the week after you buy it.

A resale is a safer investment if you're looking to get into the property rental business as its main advantage is the option to move in tenants in right away. To purchase resale condos as real estate investments is purchasing the option to rent immediately, or flip the condo in a few years' time once the value has appreciated. The bottom line is when considering the pros and cons of pre-construction property vs resale, the market isn't going to let you down.

 

Working to Build Condos

 

One of the safest investments

"I think what's really important that people remember is that real estate is an asset," Elkind said. "Specifically Toronto real estate has done incredibly well over the last, you know, three, two decades. It's a really safe place to put your money where you can get really solid returns. And as long as you're investing with, with a long time vision. You know, historically you're going to do incredibly well."

The main advantages of both pre-con and resale investments are that the value of your condo will continue to grow and continue building until you choose to resell. When you purchase a property, there are countless opportunities in terms of how to get your unit to give you the most bang for your buck.

Post-pandemic rising markets

"We're seeing the market come back to life," Elkind said. "Now that people know that there's a cure and there's that certainty because rates are at all-time lows, people really are confident on where the market is going. And as soon as we see the borders open up. We're going to see a real, real increase in rental demand as well."

This means that now is a great time to purchase a condo as an investment. A by-product of this pandemic is how quickly every city is building in terms of growth. Using a condo to get in on the floor level of real estate is a real advantage in 2021 because new condos are popping up in every major city in Canada. The market value of condos is increasing at exponential rates and guarantees a great return profit on your investment unit.

Is the condo lifestyle for you?

"Depending on your lifestyle there's like a lot of advantages of living in a condo," Elkind said. "If you're someone who goes away on the weekend, who doesn't want to bother with landscaping, or it's important you don't want to own a car and you want to live close to work. I mean these are all great reasons why you would own a condo."

Living in a high-rise building comes with benefits like not having to worry about maintenance or knowing there are certain rules every tenant in the building must follow. These benefits ring true for 0wners of pre-construction and resale condos. Your unit is just a small part of a community that works together to live in harmony. Buying pre-construction just means you may have to wait a little longer before you get that sense of community belonging that comes with living in a condo.

Ready to find make an investment?

 

New Buildings and Opportunity for Investment

 

At the end of the day, choosing a pre-construction vs resale condo is up to you, but there are pros and cons to each option. Real estate investments are a great opportunity to get your money to work for you and to take part in a growing market that will only increase in value as the years go on.

Whether you choose a resale condo or one that's in its construction phase, you know that your real estate purchase will bring you a profit. Why? Because the demand for condos continues to rise (no pun intended). Either way, you can rest assured knowing that looking into new or existing condo developments for sale is the right move when it comes to investing your hard-earned money into something profitable.

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