05/23/2012
Condominium investment is becoming increasingly popular as it’s one of the most affordable ways of entering the real estate market.
The Down Payment
To buy a pre-construction condo your client will be required to put a lump sum down payment upfront. Today, most developers allow buyers to spread their payments out over 1-3 years on a pre-set payment schedule to make their units more affordable. But you still must ask your clients: can they afford all of these payments? The money will be locked in and non refundable.
Buy With A Platinum Real Estate Agent
The most important factor with any pre-construction development (condo or otherwise) is this: the earlier they buy, the lower the price, and hence the better the future Return On Investment (ROI) (and the greater the cushion against potential loss). To ensure this happens make sure your clients are working with a platinum real estate agent. These are the agents who get first access to specific units in a building. These agents don’t have to line up to buy and get the earliest access to the best units at the best prices before anyone else (VIP agents or otherwise).
Yes, in doing this you will sacrifice part of your commission. However, many developers are offering 5% commissions, and since you are bringing the buyer to the table you can get more than 50% of the commission as with resale properties. By buying from an agent with platinum access you ensure a better return on investment for your client, helping pave the way for future referrals from your clients’ friends and family who want to invest when they see your client making great returns on their condo.
Are They Selling The Condo?
Once the occupancy date arrives they shouldn’t expect to sell the condo right away. Be prepared to wait at least a year longer than the expected date of completion before the selling date. This takes into account the project running late and there are problems selling the unit right away. Remind them their unit’s market value will be based on what others in the same building are charging. Many, many investors will ‘flip’ or assign their units before the occupancy date, so in holding onto your unit until well after this date gives you less competition from comparable units in the building that are for sale, helping them get a higher selling price.
Are They Renting The Condo?
Take a look into the developer’s rules. Some developer’s have strict policies around renting. Also investigate what the reserve fund is for the condo and ask for a realistic 10-year horizon for maintenance fees and what they cover, i.e. utilities, snow removal, lawn maintenance. All of these expenses cut into your client’s profits. Research what the average rents are in the area for a unit similar to theirs to give them an idea of what it might rent for.
Choosing The Most Important Features In An Investment Condo
The two places that add the most value are the kitchen and bathroom. Advise clients to choose neutral colours and simple finishing for appealing to a bigger audience.
Another huge factor is the condo’s view, especially the balcony view. The better the overall view, the greater the appeal to both renters and buyers. Condos on upper floors tend to have better views, but the higher the floor, the more the condo costs. A condo’s view often heavily depends on the structures near the condo. Your real estate agent must advise on what view a pre-construction condo will have.
If renting, focus on durability and functionality. Spend money on higher quality floors and cabinets that last longer. This will save money in the long run. But don’t go overboard. Renters are more concerned about location and if the until is clean. Keep in mind renters often ask for onsite laundry and parking as well. Some buildings (especially ones in downtown Toronto) have very limited parking spots available and may only be able to offer it to some of the building’s residents (eg. Units with 2 bedrooms).
Final Thoughts
When a building’s construction is finished and the occupancy date looms, investors are thereafter responsible for the mortgage payment and maintenance fees as they wait for a buyer or renter. Make sure your client’s budget can handle this.
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