Resale Condos Vs. Pre-Construction Projects: What’s The Better Route?
In the current real estate landscape, investors are increasingly turning to resale condos as a more viable investment compared to pre-construction properties. This shift is largely driven by significant changes in the Toronto condo market, where the price per square foot for pre-construction units has skyrocketed.
Today, we are seeing pre-construction projects priced between $1,400 and $1,800 per square foot, which is a drastic increase from the previous ranges we’ve seen 3 to 4 years ago of $1,000 to $1,200 per square foot.
We want our clients to make smart real estate choices and it’s no secret that pre-construction condos are not the best route in today’s market. Here’s why many investors are seeking resale opportunities rather than pre-construction projects.
Affordability Concerns
One of the most pressing issues with pre-construction condos is affordability. The surge in prices has made it increasingly difficult for average investors to enter the market. In contrast, resale condos are currently available at relatively lower prices, making them a more accessible option for a broader range of buyers. By opting for resale, investors can secure a property at a more reasonable cost and avoid the financial strain associated with the inflated prices of new builds.
Construction Delays and Rising Costs
It’s no secret, many headlines out there today highlight that another major drawback of pre-construction investments is the frequent delays and escalating costs in the construction industry. Due to supply chain disruptions, labour shortages, and increased material costs, many pre-construction projects are facing significant delays. These delays not only postpone the potential return on investment but also add to the overall cost of the project, further diminishing profitability.
Negative Cashflow Risks
Investing in pre-construction condos can often lead to negative cashflow once the project is completed and takes occupancy. The higher purchase price, combined with the possibility of rising interest rates when the project completes in 3 to 4 years and not to forget – maintenance fees! can result in expenses that exceed rental income. This negative cashflow scenario can strain an investor’s finances and reduce the overall appeal of pre-construction properties as a profitable investment.
The Advantage of Resale Condos Right Now!
In contrast, resale condos offer a more immediate and reliable investment opportunity. With resale properties, investors can bypass the uncertainty and delays associated with new construction. These units are already built and often come with a proven rental history, providing a clearer picture of potential returns. Additionally, the current market conditions have kept the prices of resale condos relatively low, allowing investors to purchase at a discount and potentially realize greater appreciation over time.
What About Assignment Sales? Is This a Smart Investment in Today’s Market?
Assignment sales present a unique opportunity in the real estate market, particularly for those interested in new builds without the initial pre-construction investment drawbacks as mentioned above. Although pre-construction units have become less attractive due to skyrocketing prices and delayed projects, assignments offer a viable entry point.
Many initial buyers of pre-construction condos find themselves unable to afford the mortgage when the project nears completion, prompting them to sell their contracts at a loss to exit the agreement. This scenario allows savvy investors to acquire these contracts at a discounted price, potentially below market value, and bypass some of the financial risks and delays typically associated with pre-construction purchases. Thus, assignment sales can be an advantageous strategy for securing new build properties at more affordable rates.
Many initial buyers of pre-construction condos find themselves unable to afford the mortgage when the project nears completion due to the higher interest rates and/or personal reasons, prompting them to sell their contracts at a loss to exit the agreement. This scenario allows savvy investors to acquire these contracts at a discounted price, potentially below market value, and bypass some of the financial risks and delays typically associated with pre-construction purchases. Assignment sales can be an advantageous strategy for securing new build properties at more affordable rates.
Pre-construction condos once held significant appeal for real estate investors, the current market dynamics have shifted the advantage towards resale condos. The inflated prices, construction delays, and negative cashflow risks associated with pre-construction make resale condos a more practical and profitable investment. By capitalizing on the lower costs and immediate availability of resale units, investors can secure a more stable and lucrative position in Toronto’s condo market.
If you want to review some of Toronto’s best assignment deals or resale opportunities listed today, we would be happy to share the details of these properties and support you in understanding the breakdown analysis. Just like the hundreds of clients we have helped over the years, we want to support you too in making the smartest investment you can today!
Let’s connect, send an email to bob@odanovic.com or head over to our ‘contact Bob’ page.