What You Need To Consider Before Buying Brand New
What To Ask
The process between buying brand new and buying resale can differ greatly. Understanding the fundamental differences can help determine which route would be more suitable.
Are you working with the right real estate broker? Your average sales rep may not be able to get you the best deal.
Sometimes properties have exclusive or VIP listings with certain brokerages and/or agents. We're able to get you the best deals and units because we have first access to the most highly anticipated and sought-after projects. This means that we, and our clients, have first choice - this privilege is not available to everyone. Teaming up with a trusted/experienced real estate broker that is known for their pre-construction contacts is usually your first step to success.
Why do you want to purchase in pre-construction and not resale?
There are a lot of reasons why purchasing in pre-construction might be a good fit for you.
Lower price – typically purchasing in pre-construction (at the earliest stage) means that you are able to purchase at ground level prices. (Note: this doesn't mean you will pay lower than resale, in certain pockets, builders attempt to sell for more).
The mortgage doesn’t start until you receive title of property or unit meaning that you are progressively paying your downpayment instead of paying up front.
You get to live in a place that’s never been lived in before.
You get to choose finishings and upgrades that fit your style and able to make some changes to layouts.
Note: closing costs typically tend to be a bit higher to factor in one-time fees such as hydro set up, infrastructure levies, etc.
If any of these reasons sound like you, then purchasing in pre-construction may be the right choice.
Where will you be in 3-5 years?
Typically new projects can take between 3-5 years to complete. You don’t want to purchase a property that is just big enough for your right now if you are planning on having a family. You would want to purchase a property that will be the right size for you and your family at least 5 years down the road so you can live comfortably in it without wanting to purchase a larger unit soon after.
What is the deposit structure like?
Typically with construction units in Toronto, downpayments are typically higher than the minimum 5% that you can still get away with on a resale condo. These deposits range from 10-25% of the price of the unit. The pricing structure usually looks something like this:
$5,000 upon signing
Balance to 5% in 30 days
5% in 120 days
5% in 360 days
5% in 720 days
1% on occupancy
While it may seem like a lot to have a 20% downpayment, remember that if you are unable to put down 20% even on a resale property you will have the CMCH insurance tax applied to your mortgage – which could be $10,000 or more depending on your mortgage amount. It is always ideal to have the 20% downpayment regardless if you are purchasing resale or pre construction. And at least with pre construction you have up to 720 days to be able to keep saving for your downpayment while your unit is being built.
What are my tax implications (if you are purchasing as an investor)?
Pre-construction projects do get charged HST, while resale sales have this tax built-in. However, if you are living in the unit yourself you would likely qualify for an HST rebate when your taxes are due. If instead you are planing on using the unit as an investor to rent out, than you will be subject to the HST without the rebate. For example, a $300,000 unit is about $40,000 in HST which could be a large savings and incentive to purchase in pre construction.
Time to kill? Projects sometimes (and often) get delayed
Builders do their best to be on time, however there are so many moving parts that come with new construction that could cause a project to be delayed. If the delays are longer than outlined in the agreement you may be subject to compensation. On average, delays have run from 6 months and up to 2 years. It is important to know that the occupancy date may not be accurate and to have a back-up plan if the project does get delayed.
To find out more about new builds vs. resales, feel free to hit me up.