You've decided to buy a condo, whether as an investor or for personal use; you will have to choose which condo stage you want. Choosing between pre-construction condos and resale can be challenging, especially without guidance, with either spotting key differences that provide unique experiences for the buyer.
If you're at this crossroads, like many others, understanding each option entails the first step to knowing the best choice for you. This guide also discusses the tax implications, cost, and returns for each option, which is especially important for an investor.
With the real estate market soaring recently, the cost of both a pre-construction and resale condo has increased. More people are beginning to see the value of condos and how they help first-time homeowners and small families own their spaces. With more condos springing up across Canada's cities, this may be your opportunity to get your condo. However, before you get into the purchase, we want to see what each of these options means.
Pre-construction condos are sold before the building has been completed, sometimes even as early as before getting permits from the city. Depending on the stage of the condo before you buy, it may take between 2 to 5 years for the condo to be ready. For pre-construction condos, the buyer would be purchasing from the developers.
Pros and Cons of Pre-construction Condos
Why would anyone be interested in buying a building yet to be completed and sometimes just designs and rights? Here are some advantages and disadvantages of this option you should know:
Pros of Pre-construction Condos
- Customization: as the first owner and owning before completion of the building, you get the privilege of customizing certain parts of the condo like paints, flooring, and appliances
- Today's price for tomorrow's property: pre-construction condos allow you to lock in the price today for a property of the future where the price will most likely increase. Buying before the completion is a money-saving tactic that most people neglect
- Cheaper: not only do you get a good deal because of the risk of delay you're taking, but you also get to spread your payment for the construction period, which can span several years. The spreadsheet I'll reduce the pressure on you and allow you to complete your payment with little to no sacrifices.
- Little to no maintenance: since it is a new property, you would expect to make very little maintenance, especially for the first few years, thus allowing you to save money and stress
Cons of Pre-construction Condos
- It takes a long time: the main risk of purchasing pre-construction condos is the time delay. It takes about 2 to 5 years to complete a pre-construction condo, and even though you may be given a timeline for completion, delays can occur, further prolonging the wait.
- Difficult to back out: backing out from a pre-construction condo sale agreement is difficult and sometimes impossible. Where possible, the process is challenging and costly as you may have to sell at a loss.
- High deposit rate by the time of occupancy: the deposit rate required for pre-construction condos is about 15% to 25% of the cost of the condo. The plus here is that you have a few years to raise this figure before the completion of the condo.
Resale Condos are completely built and have been lived in before seeking the sale. So for resale, you're purchasing a condo that had been lived in by the owner. For presale, the condo is move-in ready, as the building has long been completed. Purchasing resale Condos may require a mortgage, but luckily, interest rates have been low.
Pros and Cons of Resale Condos
While buying a brand new property is enjoyable, resale condos offer other advantages that make it an exciting option for many.
Pros of Resale Condos
- Move-in ready: with resale condos, you don't have to wait years since the building has been completed. Purchasing this type of condo will allow you to move in as soon as possible.
- Tangible purchase: buying resale condos is practical since you're purchasing a property you can see, with all of its faults in full glare. With this type of condo, unpleasant surprises are kept at a minimum since what you see is what you get.
- Liquidity: from the moment you pay the required payment for the condo and fulfill all regulations, you can use the condo as you deem fit, including moving in, renting it out, or even resale. Such great liquidy is a huge plus in real estate where a lot of money is involved.
- Small deposit: you only need to deposit 5% of the agreed amount before taking possession of the property. The small deposit makes it easily affordable for many people.
- No GST: no need to pay the 5% good and services task after payment for resale condos
Cons of Resale Condos
- No customization option: since the condo has already been built, you cannot customize some parts of the space. You may be able to make some changes, but it'll cost a lot more.
- Less time to save for a down payment: from the time you spot the deal to when you agree on a price is often a short period, and you need to make the down payment to secure the condo before anyone else. This short time means you may not have any time to save up for the deposit amount.
- It may require immediate repairs: depending on its age and usage from previous occupants, your resale condo may require immediate repairs and maintenance even before moving into the property.
Pre-construction Vs Resale Condos: which is the better investment?
How do you know the best option to choose between buying a pre-construction or resale condo in Canada? The answer depends on your particular needs, as pre-construction condos are great if you want to have a say in some of the finishes used in the condo and are okay with the wait. At the same time, resale condos are best if you want to utilize the property immediately and are okay with an older house.
Pre-construction condos are a long-term investment, and you should steer clear if you want a faster return, while resale provides immediate access to the building. The time delay is one of the major differences between the two condo options, which you should carefully consider before choosing any, as mistakes can prove too costly in real estate.