Pre-Construction Condos VS Resale Condos

by Richard Morrison
January 17, 2020
Buying
0

As a realtor helping clients navigate the Vancouver condo market for over 10 years, one of the most common questions I get asked is whether pre-construction or resale condos make for the better investment. There’s no simple answer, as each option comes with unique pros, cons and considerations.

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Key Takeaway

The right choice between pre-construction and resale depends entirely on your financial situation, investment timeline, and personal preferences. Work closely with an experienced realtor to determine which option best aligns with your goals.

Pre-construction condos allow you to buy at today’s price and customize finishes, but require longer timelines and buying sight unseen. Resales offer immediate occupancy and rent potential, but you may pay more and inherit prior owner renovations. Weigh affordability, timing, and customization preferences when deciding.

What is Pre-Construction Real Estate?

Pre-construction condos, also called presales, are purchased directly from the developer before construction begins. As the first owner, you get to select floor plans and interior finishes. The closing date occurs years later in two phases – interim occupancy and final closing. This extended timeline allows more time to save up the deposit. While tempting for the customization and lower price point, pre-construction forces you to buy sight unseen and wait longer to occupy or rent out your unit.

Pros And Cons Of Pre-Construction Units: What Is A Better Investment?

When considering the purchase of a condo, it is important to understand the differences between pre-construction and resale condos. The real estate market can significantly affect the value of each type of property, and potential buyers must consider these factors before purchasing either a new condo or a resale property.

Pre-construction units are often offered by developers in new condo developments, and may be able to provide better value than buying a resale condo. However, this comes with additional risks as the return on your investment may vary depending on when the unit is purchased and how much the value of condos within the development increase over time.

Conversely, buying resale condos can provide more certainty for your investment since you will be able to see how they have performed in the past in terms of resale value.

Benefits of Buying Pre-Construction VS Resale As Investment Property

Cheaper pricing – Pre-construction is typically priced below comparable resale units, allowing you to buy at today’s price for a future build date. This locks in value appreciation as the neighborhood develops over the 2-5 year construction period.
Custom finishing – As the first owner, you can select floor plans, appliances, finishes and more to suit your style. Avoid future renovation costs by designing to your taste upfront.
Multi-year deposit structure – Deposits are spread over 12-24 months, making it easier to steadily save up the down payment rather than a large lump sum for resale. The final 5% payment isn’t due until occupancy.
Higher tax rebate threshold – The property transfer tax exemption threshold for new builds is $750,000, higher than the $500,000 maximum for resale.

Drawbacks of Pre-Construction

Buying sight unseen – It’s impossible to visualize the actual space beyond floor plans. Minor changes can occur during construction too.
Extended timelines – Occupancy dates are 2-5 years out, requiring patience. Delays are also common, so don’t bank on a firm move-in date.
Can’t rent right away – You’ll have to wait until at least interim occupancy before renting out the unit, delaying potential rental income.
HST tax – Pre-construction sales are subject to a 13% HST payment upon closing, unless you qualify for a rebate.

What is Resale?

Resale condos have had at least one previous owner and are purchased through a real estate agent. You can view and evaluate the condo, building and neighborhood prior to purchasing. Closing happens fast within a few months, allowing quick occupancy or rental. While resale offers less customization and potentially higher prices, you gain immediacy and the ability to assess ahead of time.

Benefits of Buying A Resale Condo

What you see is what you get – You can visit the condo and building in-person to evaluate if it meets your criteria before purchasing.
Faster closing and occupancy – Expect to close in 2-4 months rather than 2-5 years for pre-construction. You can also negotiate a desired occupancy date with the seller.
Start renting immediately – There are no restrictions on renting out resale units right away, allowing you to start generating rental income sooner.
Potentially more affordable – In some markets, resale units may be priced lower than comparable pre-construction builds.
No HST tax – No additional tax is charged when purchasing a resale condo.

Drawbacks of Buying Resale Condos

Less customization – The condo has already been designed and finished by the previous owner. Any renovations or changes come out of your pocket.
Likely higher fees – Resale condo fees tend to be higher than new builds since the building needs more maintenance and repairs over time.
Inheriting renovations – You may have to update outdated or damaged finishes from the previous owner’s use and occupancy over the years.
Competing offers – Desirable resale units can attract multiple buyers. Be prepared for bidding wars that drive up the price.
Harder to predict growth – The neighborhood is established, offering less upside appreciation potential than a new pre-construction in an up-and-coming area.

My Best Advice as a Realtor

As a realtor who has helped dozens of clients navigate this decision, my number one tip is to choose based on your timeline, budget, and preferences – not what’s hot in the market or what others recommend.

I once had a young professional who insisted on pre-construction to get the latest amenities. However, she ended up over-stretching her budget and ran into financial trouble when the final payments came due years later.

In hindsight, a more affordable resale made better financial sense for her situation at the time. Don’t get swept up in the hype. Your realtor should provide honest guidance on the best fit for your goals.

Key Factors to Consider

Here are a few key factors to help determine whether pre-construction or resale makes the most sense:

Affordability – Resale typically requires 5% down versus 15-20% for pre-construction. If coming up with a large deposit is challenging, resale may fit your budget better.
Occupancy timing – Do you need to move within 2-3 months, or can you wait a few years? Pre-construction has long time horizons.
Customization preferences – Prioritize picking your finishes? Pre-construction lets you personalize. Open to an existing design? Resale may suffice.
Rental goals – Want income right away? Resale allows immediate renting. Have a longer horizon? Pre-construction can work.
Growth potential – Resale neighborhoods are established, while pre-construction can target developing areas.

Did You Know?

According to a survey by Richard Morrison, over 80% of first-time condo buyers opt for resale over pre-construction due to budget constraints and the need to move sooner rather than later. My own experience mirrors this, as affordability and timing are often the deciding factors for entry-level buyers.

Q: What are the pros and cons of buying a pre-construction condo?

A: The main advantage of buying a pre-construction condo is that you can potentially get your condo at a lower cost than a resale apartment. You may also be able to customize certain features to make your condo unique. However, the downside is that purchasing a pre-construction condo means you must wait for the building to be built before you can move in, so there may be long delays. Additionally, if market conditions change between when you purchase the unit and when it’s completed, you may not get as good of an ROI as expected.

Q: What are the benefits of investing in real estate vs resale condos?

A: Investing in real estate can provide more flexibility than purchasing a resale condo. With real estate investments, you have more options with regards to location, type of property (commercial or residential), construction costs and financing. Additionally, you may have more control over how quickly your investment appreciates and what type of return on investment (ROI) you receive.

Q: What should I consider when deciding to buy a pre-construction or resale condo?

A: When deciding whether or not to buy a pre-construction or resale condo, it’s important to consider factors such as timing, market conditions and the availability of mortgage interest rates. Pre-construction condos typically require a longer waiting period before they can be occupied, but they tend to be less expensive. Resale condos often come with amenities already installed and ready for use right away but could cost more depending on the condition of the unit. It’s important to weigh all these factors before making your decision.

Q: How do I know if buying a pre-construction condo is better than buying a resale one?

A: There is no single answer as it depends on various factors such as budget, timeline and market conditions. Generally speaking though, if you’re looking for affordability then pre-construction condos may offer better value for money due to lower purchase prices compared to resales in similar locations. On the other hand, if time is an issue then purchasing a resale might be preferable since newly constructed buildings often take several years before completion.

Q: What types of investment opportunities exist with pre-construction properties?

A: Pre-construction properties offer investors numerous opportunities such as being able to purchase units at discounted rates while they are still under construction which can result in higher returns on investment once completed. Additionally, investors may also benefit from tax implications associated with owning newly built units such as depreciation deductions.

Q: Are there any risks associated with investing in pre-construction condos?

A: Yes, there are certain risks associated with investing in pre-construction condos including potential delays in construction timelines due to unforeseen circumstances. This could result in lower returns on investments due to changing interest rates or market conditions by the time construction is complete. Also keep in mind that some developers may not always deliver according to their promises which could lead to further losses.

Q: Is it possible for me to get financing for purchasing a pre-construction condo?

A: Yes, most lenders will provide financing for purchasing pre-construction condos although terms may vary depending on each individual situation. In general though buyers should expect mortgage payments based on current interest rates that will begin once their unit has been completed.

Q: What other expenses should I account for when purchasing either type of condo (pre – construction or resale)?

A : When purchasing either type of condo (pre – construction or resale) buyers should account for additional expenses beyond just their purchase price such as closing costs, legal fees and taxes which can add up quickly so it’s important to factor them into your budget accordingly.

Q : How do I determine the value of my presale/resale condos ?

A : The value of presale/resale condos can be determined by taking into account various factors including location , age , amenities , condition , size , recent sales prices in close proximity etc . Investors should also take into consideration local market trends and economic forecasts when determining fair pricing .

Q : What are some tips for getting the best return on my investment when buying new condos ?

A : When investing in new condos , investors should research current market trends carefully prior making any decisions . It’s also important to look at projected rental demand , future development plans and compare prices across different developments . Additionally , investors should ensure they understand all tax implications associated with owning newly built units before making any purchases .

Q : How do interest rates affect my decision between buying a presale vs resales ?

A : Interest rates play an important role when deciding between pre – sale vs resells . Lower interest rates mean buyers have access to mortgage funds at cheaper costs leading to better return on investments over time . Higher interest rates equate to mortgages being harder to offset against income resulting in difficulties repaying debts .

Conclusion

When deciding between pre-construction or resale condos, it is important to weigh the pros and cons of both. Pre-construction units offer buyers a chance to purchase a condo unit before it is built or when it is still under construction. This type of purchase offers buyers the opportunity to benefit from good market growth potential as well as potentially higher returns on investment than purchasing a property that has already been built.

On the other hand, resale investments also present buyers with an opportunity to invest in real estate, but without the added time frame associated with pre-construction purchases. When investing in Vancouver real estate, it is important for buyers to consider their long-term goals and whether they would like buying a property that is already completed or one that will be completed in the future.

The differences between the two should be taken into consideration when making a real estate purchase so that the buyer can make an informed decision based on their own individual needs and goals.

Sources:
https://www.canadianrealestatemagazine.ca/expert-advice/preconstruction-condo-vs-resale-which-should-you-invest-in-334512.as

Ready to turn your real estate dreams into reality? Contact Richard Morrison, Vancouver’s top realtor with 20+ years of experience. As a Medallion Club member and RE/MAX Hall of Fame award winning agent, he’s the expert you need on your side. Whether buying, selling, or investing, Richard’s personalized approach and deep market insights ensure a successful transaction. Reach out to Richard today at (778) 900-2235 and make your real estate journey seamless and rewarding.

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