Toronto has the strongest condominium market in North America, with immigration projected to remain strong throughout the next decade and given the affordability of out market place in comparisons to other major cities our condo market will continue to be a good place for investors at home and abroad to invest their money.
With soo many projects coming out all the time, it can be overwhelming to both the novice and seasoned investor alike. In an attempt to cut through all the clutter and projects, I am going to outline the 10 golden rules of Preconstruction investing.
1. Let your money work for you. Always buy in an area that’s gentrifying. When buying preconstruction you are buying 3-4 years out. Why pay a premium to be in an area that’s already developed? The greatest up tick will be found in areas that are undergoing rapid growth and gentrification.
2. The Toronto Condo Market is similar to that of a night club. You have to know someone to get in at the beginning. The key is to target the project that you are interested in and be the first to purchase. By being the first purchasers you ensure that you are paying the least and amount and that you have your choice of the best floor plan which generally sells out before a project goes to the public. You need an experienced agent who is in the know.
3. Always buy small when buying for investment. It is better to purchase two 500 square foot units from an investment perspective then it is to invest in one 1000 square foot unit. Smaller units are easier to sell or rent out, and there is less exposure to market fluctuations. With Toronto currently at a rate of about 500 psf, for preconstruction you will need to purchase small units in order to avoid a negative cash flow position, which is paramount.
4. Never buy at the high end of the market. When you are buying preconstruction you are essentially buying condo futures. While we can all gaze into out crystal ball and predict the future we can never be sure with 100% certainty that our predictions will come true. Those who buy at the high end, you will be the most exposed when the market softens or if there is a downturn at the time of the project completion. By buying astutely in the mid to low end of the market you are better positioned to sustain a market shift or correction.
5. Parking. There was a time when you would be considered a fool to buy a condo without parking. Well, times have changed. Toronto is going the way of other major cities like New York where it is becoming too expensive to drive. Not having a car is becoming a generational thing and more people living in Toronto do not own a car. Parking in preconstruction condos in Toronto are selling as high as $45,000 and from an investor’s perspective, it is simply isn’t worth the money. Most new condo’s all have autoshare or zip cars on site and are near a on a subway line. So my recco is to buy near or on transportation lines.
6. Avoid investing in the monster buildings. From a resale prospective when it comes time to sell your investment, you are going to get a higher price for you unit if you are selling to an end user as opposed to another investor. End users view smaller boutique , building and settings at a premium. It is preferable to resell to an end user as they will pay more for a property once they are emotionally attached to it, then an investor who is just looking at the numbers. Also when it comes time to sell if you purchase in a small building there is far less chance of competition, while in a 400 unit building there is a very strong chance that here may be several similar type units for sale. The competition will decrease the amount you will be able to sell your unit for. It is simple supply and demand.
7. Invest in something that is unique. There is so much inventory going up in Toronto, but most of it is cookie cutter type of stuff. Exceptional projects will always stand out and as a result they will better hold their value in a downturn and will command higher prices when the market is strong.
8. Budget to wait at least a year or two minimum after the condo project is completed. In most projects in the first year after its completion is the time where most investors are going to try and realize their profits and then cut and run. Wait till all the original investors are out, let the grass settle, and the paint to dry , before putting your unit on the market place. In the interim while you wait for the ideal time to strike , a tenant is living in your unit. Paying down your mortgage while your property quietly appreciates.
9. It may not be worth the premium to purchase on a higher floor. This may depend on the project, the views, and the charge per floor. Typically, the price you pay for a difference of 10 floors will be difficult to make up in rental income while you hold the property. On average it will cost 2000 premium per floor, while it is with paying to have a good view it generally will not be worth paying to be in the top floor. These types of units should be purchased buy end users who will feel inspired by the potential views.
10. Do not pay for upgrades. They are a great profit centre for builders and are generally over priced. Since you will not be living in the property why are you paying a premium for the enjoyment of future tenants? Most of the newer project all offer great standard features, like stainless steel appliances. The added upgrades are paid in full on the spot and are not rolled into the mortgage and therefore cannot be leveraged. You are better off to keep your money in your wallet. – RF