If you’re trying to build a real estate portfolio from scratch or perhaps don’t have a large amount of capital, we say consider investing in pre construction. It’s a great way to build your real estate portfolio, but there are several factors to consider before signing on the dotted line.
The most important thing to consider before investing in pre construction is whether or not it works for your current situation. Sit back, look at the bigger picture and ask yourself, “does this make sense for me?”
With all the experience our team has with selling pre construction condos, we’ve put together a short list of tips for you to consider before your first purchase.
1. Choosing a good location
When purchasing any property, location is everything! It’s the biggest determining factor of the value and growth potential of your investment. Make sure the neighbourhood has a strong growth trajectory, a growing population, and a strong rental market.
There are many cities in and outside of the GTA that have a strong growth potential. It’s up to you to choose a location that perhaps is a little underrated now, but will see massive growth in the future.
2. Having an assignment clause
Given that pre construction projects typically take years to complete, your personal circumstances may go through a few changes during that time. Depending on the changes you encounter, it might affect your ability to close on the project. You’ll want to make sure you have a way out of the deal if necessary.
This is where having an assignment clause in your purchase agreement becomes very important because it allows you to sell your contract to another buyer prior to occupancy. This means you can simply pull out your deposit and not close on the property. The last thing you want is the time of occupancy to arrive and not being able to close on the property. There quite a few horror stories out there, but if you’re reading this article there’s a strong chance you won’t be one of them.
Assignment transactions are quite complex because they require builder approval and most builders place heavy restrictions on advertising your unit. This is why we highly recommend working with a specialized team to assist you in making a successful transaction.
3. Investing in a building with suitable amenities
As a real estate investor, you’ll want to put your tenant hat on and think like a renter. Ask yourself “what attracts renter?” “what makes them want to pay a premium price and live in a building?”
One key thing to remember as a real estate investor is that amenities attract renters! So choose your building wisely based on the demographic of renters you’re seeking. For example, if you are targeting families with young kids, choosing a building with a pool may be of great benefit.
4. Choosing a reputable builder
Choosing a reputable builder can easily make or break your purchase. It’s essential that you choose a developer with a solid track record of executing development plans in a timely manner. We recommend taking a good look at their completion rate and speaking with previous buyers about their experience.
5. Hiring a lawyer
No pre construction purchase should be made without hiring a lawyer to comb through the purchase agreement and highlight any red flags. Be sure to choose a lawyer who specializes in real estate, specifically in pre construction and assignment transactions. Builders typically protect themselves with purchase agreements, so you’ll want to make sure you’re well aware of what you’re on the hook for as a buyer.
Thinking About Investing in Pre Construction?
Investing in pre construction is a great option for beginner investors looking to climb up the real estate ladder. If you would like to learn more about investing in pre-construction, one of our qualified agents will be happy to speak with you!