What are the advantages of pre-sale properties for investors?
Presales offer many advantages for investors. Below we outline six attractive features of the presale market.
You often can secure the purchase of a presale for as little as a deposit of 5 to 10%. Should the property increase in value before completion, you could see a significant return for very little money actually invested. For example: you decide to buy a $300,000 condo home with a planned completion date for 5 years in the future. To secure the property, you make a 10% deposit of $30,000. Due to an increase in the real estate market, your condo is worth $360,000 2 years later and you decide to sell the property (this is known as selling the assignment of contract). You walk away with your $30,000 deposit along with the value-added to the property – that is, 60,000 or a 200% return on your initial investment.
Now say you decide to hold on to that same property and the price remains constant until your completion date. The property is still valued at $360,000 when you go to your broker to see about acquiring a mortgage. Because you have more than 20% in equity ($60,000 + $30,000 = $90,000 or 33.3% of your $270,000 mortgage) you can avoid costly CMHC high ratio insurance premiums that are required for properties purchased with less than a 20% down payment. In this case, you managed to have a 33.3% down deposit on your mortgage with only putting 10% down initially.
2. Low Hassle Investing
Presale properties follow real estate market trends, with prices rising and falling just as the existing property does. The difference between holding a presale and an existing property lies in the fact that an investor can benefit from the potential capital appreciation without the worry of tenants, the cost of property taxes, and the monthly maintenance fees.
3. Low Cost of Ownership
New condos built by reputable developers will usually not require costly repairs or maintenance on the part of an owner/investor for a considerable period after completion. The same cannot always be said for older buildings.
4. Warranty Protection
All presale construction receives BC’s 2-5-10 Year Home Warranty Insurance. This warranty does not begin until the building is complete and, in most cases, assures the investor low costs and low hassles for the duration of the warranty.
5. Newly Built = Popular with Tenants
Newer buildings are usually very popular with tenants for fairly obvious reasons — modern design, new fixtures, and appliances; no need for repairs or troublesome and costly maintenance; and the conveniences that come with many newer buildings, such as swimming pools, workout centres, saunas, hot tubs, concierge, etc.
6. Newly Built and Popular = Higher Rent
Very often tenants are willing to pay a premium to rent a recently constructed suite over an older unit for the reasons detailed above.