Why do you buy pre-construction real estate?

[BrianPersaud]

Hi Folks,

In 2011 Profitable Investing in Condominiums: Strategies, Tips and Expert Advice for the Canadian Real Estate Investor will be on the book shelves written by myself and published by Wiley.

I'm looking for case studies and your story to be featured in the book. The aim for this book to be a complete guide in buying real estate pre-construction

So for the first question: What are the advantages of buying pre-con?

Please share your story, i'd love to showcase it in the opening chapters

 

[Yama]

here is my story

Back in September 2007 I purchased a condo (I was single). The sales person said the closing will be July 2008.
Paid 10% down over 4 month.
May 2008 Received a letter That closing date change to January 2009. I was little mad but Couldn't do much. accepted it.
September 2008 Received another letter saying my closing date is changed to July 2009. At this point I was engaged.
June 2009 I received another letter My closing date is changed to January 2010. hahahahahahahaha thats all I have to say.
October 2009 I received another letter My closing date is changed to September 2010. at this point I am MARRIED...
July 2010 Received a letter my closing date is changed to January 7 2011. at this point we are expecting our first child.
NOW October 2010 received a letter closing date is set for MARCH 2011 hahahaha.
Out son name is ARMAN. hahah this is a joke.

Advantage is I made money with out paying mortgage. but people life change over time, so builder need to understand. I WILL NEVER EVERRR Buy a property from this builder or recommend anyone. private message me and i will tell you which builder.

MARCH 2011...Crossing my fingersss.

 

[daveto]

Back in September 2007 I purchased a condo (I was single). The sales person said the closing will be July 2008.
Paid 10% down over 4 month.
May 2008 Received a letter That closing date change to January 2009. I was little mad but Couldn't do much. accepted it.
September 2008 Received another letter saying my closing date is changed to July 2009. At this point I was engaged.
June 2009 I received another letter My closing date is changed to January 2010. hahahahahahahaha thats all I have to say.
October 2009 I received another letter My closing date is changed to September 2010. at this point I am MARRIED...
July 2010 Received a letter my closing date is changed to January 7 2011. at this point we are expecting our first child.
NOW October 2010 received a letter closing date is set for MARCH 2011 hahahaha.
Out son name is ARMAN. hahah this is a joke.

Advantage is I made money with out paying mortgage. but people life change over time, so builder need to understand. I WILL NEVER EVERRR Buy a property from this builder or recommend anyone. private message me and i will tell you which builder.

MARCH 2011...Crossing my fingersss.

Ahem.
Somehow I don't think you will be selected for inclusion in Brian's book.

 

[TrickyRicky]

Although, Yama's story is semi-ubiquitous from my anecdotal experience. A lot of first time buyers who have the full intention of occupying their unit in their current circumstances find that the combination of changes that happen in their life plus countless construction delays equates to a deliverable at the end of the process that no longer makes sense.

 

[JayBee]

Pre-Con just takes too long. You have Berkzy purchasers thinking they'll be moving in in 2 years because "that's what they said at the sales center". Try 4 years.

Lets say I would have bought into 1 Bloor... I'm 30 now....lets throw in about 4-5 delays...the building might register by the time I'm 37. I have no idea where I'll be then...and I'll probably outgrow a 700sqft condo by that time.

 

[MBS-Guru]

i think most buy pre-con because they like surprises .... who doesn't like a surprise parties / events?. People in general like being surprised. The surprise of hidden fees and closing costs can be quite a thrill that adds $15-20k to the cost of what you thought you were going to pay. Joy!.

 

[TrickyRicky]

P.S. My comment is not to crap on pre-construction or the condo industry. However, if you look at the real human story behind the sales numbers you really have to ask yourself if the condo development industry is presenting it's product in a genuine principled manner. Selling a dream, a life style vision, a romantic notion, I think these are all legitimate exercises. Beyond keeping the rain out what is real estate or a home anyways if not a dream, life style vision or romantic notion? However, where I have a problem is when false advertising and expectations of completion dates is systemically built into the process. Lawyers make sure that the excercise is legal but in terms of the far more important human emotional bank we all recognize it for what it is, fraud.

 

[Eug]

I bought it because it was much cheaper.

When I moved in a couple of years later, the price of the unit jumped around 20% or so. Part (maybe half?) of that was due to increases in the market, but part of that was due to the fact it was finally completed.

BTW, it allowed me to lock in with less than 25% down, at an attractive price, but by the time the place was actually built and ready to move in, I was able put 25% down to avoid CMHC insurance fees. If I had simply waited 3 years and bought a new unit, my 25% downpayment would have only been worth about 20%, and the principal would have been that much higher too.

While even 20% would be enough to avoid CMHC fees,I didn't have that amount when I first locked in. Also, one can just jig the numbers a bit for someone else. They may have 20% after a few years, but only 10% now. I don't know if my experience is still applicable though in 2011 for new pre-construction.

 

[simuls]

One word: leverage. Unfortunately, that word can go both ways and I no longer think that word applies in a positive way to the pre-con RE condo market. Pretty much anytime between 2002-2007, I would've said yes (and a tiny blip of 4 months in early 2009), but now, pre-con is a dumb buy almost anywhere in downtown TO and it's worse in the suburbs.

 

[X2 Buyer]

Here is my story:

2004 I bought a pre-con in Toronto with 5% down while owning a house in Scarborough. Thinking when it would be ready I could move in or rent it out depending on my financial status. Back then condo price was pretty good because people had less interests in condos.

It has been delayed for a couple of times but I did not mind since I had a place to live in. I had sold my house and moved into the condo when it was ready in 2007. I did not keep it for rental purpose for 2 reasons 1) Other than along lakeside I found Scarborough become not a desired place for residential purpose from time to time gradually 2) we were no longer having a stable job & income because the internet bubble burst impacted job market and the condo is less cost so it relieved our burden on mortgage and other house related cost.

In 2007 I have bought another new pre-con with 5% down and was told it would be ready 2009 but no surprise it has been delayed. Christmas 2009 I have sold my condo at 160% of my purchase price since I was not sure if the price would keep increasing so I decided not to take the risk of waiting into 2010. I currently live in a rental place and hopefully can move in my new condo in 2011. The market price for my new condo is around 135% of my purchase price. Of course out of the surface increase we have hidden cost from closing fee, lawyer fee, agent fee when selling etc.

Comparing to a single house probably the increase in condos will not be as good. However if I would've kept my Scarborough house for these years the price of that almost did not move up at all.

Having said the above though, condo previously was to represent afford-ability...probably not anymore. As of currently the boosted price in the pre-con market and the normal 20% down requirement makes me no long sure if pre-con is still a good investment tool.

 

[neuhaus]

Here's my simple story:
I have bought preconstruction a few times and it's my preferred way of buying.
I have bought for both as a personal residence and as an investment. With preconstruction I have better selection of units/floors/orientation/views, choose my own selection of finishes and upgrades, and ease of doing minor changes to the floorplan (moving or eliminating walls, changes to lighting and electrical, etc.). This would be difficult and costly, if not impossible if it were post-construction or resale.
Buying preconstruction also locks in the purchase price with a reasonable down payment.

I also like being the first occupant of the unit. To me there is something about the smell of a new building, just like the smell of a new car (I also buy cars new instead of preowned). Call me obsessive.
The obvious downsides are building delays which are inevitable, especially in Toronto, and also living in the middle of a construction site during the beginning of occupancy but I think it is well worth it.

 

[thunderpunch]

I bought a home in brampton from Goldpark 16 months before it was done. I bought it because the price was much lower than the potential value of the home. I dont need the home right now but its rented out and has gone up in value 50K in 2 months

 

[cdr108]

I bought a home in brampton from Goldpark 16 months before it was done. I bought it because the price was much lower than the potential value of the home. I dont need the home right now but its rented out and has gone up in value 50K in 2 months

that doesn't sound right, 2 months or years?
you said you bought it 16 months ago, then suddenly it went up $50K in 2 months?

also, what was the original purchase price and would the $50K cover your transaction costs to sell?

 

[interested]

Reading this thread about how much people are making reminds me of being in Florida in 2004 to 2006 when everyone talked about how much money they were making as everything was going up. Somehow the past 2 years I don't hear anything at all but if something is said,it is tales of woe and lament.

as simuls said, leverage is a double edged sword. 20% down with a small increase magnifies 5 fold your increase. Go the other way, it wipes you out almost instantly. We have had just upward movements essentially for 14 years in Toronto with minor corrections. So those younger on the forum are more gung ho than I believe those of us who have seen other markets besides the past decade in TO.

To answer, I too have bought a few times some precon. I bought however to rent out and also on a couple of occasions for family/personal use. I however have the time to wait out the completion and always allow 4 years for construction.
My experience has been purchases in 2000 with completion promised in 18 months. It was 30 months late in late 2004/early 2005 completion. Since then, I have just come to expect this time horizon.

Purchase in 2007 with promise of 2011. Now talking 2012 and registration 2013 so about 12-18 months late assuming present dates don't get pushed back.

Purchase in 2008. Project actually cancelled and deposits returned with subsequent ability to buy in relaunch. Offered 10% discount on new price which was 13% higher so a net 3% increase for 2010. Did not buy again here despite the 10% previous purchaser discount offered.

This is my precon experience.

 

[BrianPersaud]

P.S. My comment is not to crap on pre-construction or the condo industry. However, if you look at the real human story behind the sales numbers you really have to ask yourself if the condo development industry is presenting it's product in a genuine principled manner. Selling a dream, a life style vision, a romantic notion, I think these are all legitimate exercises. Beyond keeping the rain out what is real estate or a home anyways if not a dream, life style vision or romantic notion? However, where I have a problem is when false advertising and expectations of completion dates is systemically built into the process. Lawyers make sure that the excercise is legal but in terms of the far more important human emotional bank we all recognize it for what it is, fraud.

Hi Rick,

Its not also with occupancy dates...it can also be with size, ceiling heights, amenity space. If its not locked in the contract or condo docs your Shit Outta Luck or have to invest in expensive litigation. I don't think people realize how much risk they are taking when buying

Working with reputable builders is so vital