Is the pre-construction or resale condos located in an area with future potential development such as transportation (Eglinton LRT, Subway line extension, master planned community, etc...)? Buying into an area where there are "shovels in the ground" is a good security of the projects completing which will increase future values and rental incomes as residents and tenants want to live in area accessible to transit and walkable. Buying into a masterplanned community such as Corktown or Regent Park is a sound approach since the developers have thought out on how the buildings fit in to create a sense of community. The building is one part that fits into the puzzle.
Pre-Construction or Resale Condos: Price per Square Foot
For resale condos, it is pretty straight forward as the real estate investor would divide the asking price per the square footage of the existing condo then compare it to what the building and immediate neighbourhood is selling for. Pre-construction condos is a little bit more involved since there are additional costs:
HST which a portion or all is rebatable depending on purchase price and certain conditions mandated by Canada Revenue Agency
Both, pre-construction or resale condos, have the cost of land transfer taxes to be accounted for. I have developed a calculator for our clients to plug in the purchase price of each option then it will produce the true cost per square foot which provides an apples to apples comparison. Click on the link to get our proprietary pre-construction or resale condos calculator.
Pre-Construction or Resale Condos: Rental Income
What's current rental income of the neighbourhood and is there potential for higher rents? An area that is undergoing future development (multiple phases), infrastructure investment (transportation, schools, public spaces, etc...) and surrounding neighbourhoods with higher rents has strong potential for higher rents. This is where an investment real estate broker can make a difference; someone who researches these areas based on the above factors to understand where the trend is going and market factors such as government regulations (rent control) and demographic changes would impact the area.
Pre-Construction or Resale Condos: Demographics & Product Mix
Over the last few years, developers have focused on building smaller units: 1 bedrooms, junior 1 bedrooms and bachelors. Not many 2 bedrooms or large 1+den have been built in recent years due to many factors. Understanding affordability, mortgage qualification requirements, and demographic shift as millennials form families and ditch the car help recognize where the demand is going. Hint: 2 bedrooms and large 1+dens if they exist! As Gretzky said: "Skate where the puck is going, not where it has been". Strong demand for products that have low supply result in higher values and rents.
Pre-Construction or Resale Condos: Gut Feel!
Yes, Gut feel is important. I often walk the neighbourhood at different times of the work week and weekends, observe who lives / works there, what type of retail is located in the neighbourhood. At the end of the day, numbers are important and provide a sense of comfort but if the neighbourhood doesn't feel right, the it factor, the real estate investor should not jump in. Real estate investing is a long term endeavour and sleeping well at night knowing one has invested in area they believe in (numerically and emotionally) makes it easier over the long term. If you are looking to invest in real estate and want guidance to help you decide on pre-construction or resale condos, please reach out.