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Pre-construction Condo Myths Debunked

In case you’ve neglected to notice, Toronto is a city chock-full of dazzling new developments. In fact, buying pre-construction is all the rage. And why not? Here’s an option that allows you a chance to spread out your down payment, more time to save, and guaranteed mortgage rates. Sounds like a solid program to us. So then why are there still so many misconceptions about pre-construction purchases?

To set things straight, here are 7 common pre-construction condo myths… DEBUNKED!

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A scale model of 150 Redpath at a Broker preview event.

My monthly costs will be so much higher if I purchase a condo than if I rent…

Okay, for many, this would be true if you bought resale with only a 5% down payment. That’s because your mortgage would have been higher, plus you’re subject to CMHC fees for any down payment under 20%. But when buying pre-construction, 20% of the purchase price will have been paid by the time you move in, which will lower your monthly costs and put them in line with (and likely under) what you’d be paying in rent for a comparable unit.

Condo developers are greedy and the units are too small…

It’s hard to get the negative stereotype of the greedy condo developer out of your head these days, especially with a guy like Donald Trump dominating the news. But on this matter, consider this: thanks to both increasing costs for construction materials and labour, as well as skyrocketing land prices, developers are left with really only two choices. They can either keep unit sizes constant, which would force prices to go up, thus making suites too expensive and out of reach for most buyers. Or they can keep prices constant, thus forcing unit sizes to become smaller. While choice #1 is the route traditionally taken by luxury condo developers, most others opt for the second. Not only does it challenge them them to create more efficient spaces, but it keeps prices steady for you the buyer.

 

35 wabash broker preview event
The line up down the block outside a broker preview event for 35 Wabash by Zinc Developments.

Only investors buy pre-construction…

Obviously there are developments in Toronto which are heavily investor-driven. That’s always going to be the case in a big city. A no-brainer, really. However, tons of end-users no different than yourself are purchasing these properties to live in too, from professionals that want to live and work nearby, to first-time homebuyers looking to enter the market, to newly married couples and young families, to downsizing baby boomers.

Most buyers are ‘speculators’ who want to flip their properties to make a quick buck…

Surveys show that while over 40% of pre-construction investors are purchasing with the intent of renting their units for the long term, and a further 30% have the intent of renting their units and using it some day as a residence… Only less than 10% are looking for short-term investments. The numbers don’t lie here, so why would we?

You have to have tons of cash on signing day…

Is this pre-construction’s biggest misconception? It just might be. But consider this: you actually only need a cheque for about $5,000—plus some government-issued ID—on the day you purchase your condo. In 30 days, you traditionally pay the balance to 5% and then it becomes a series of instalment payments which total 20% of the purchase price until you move in. Not so bad at all. And lots of times, even legal fees and other associated ones can be left until you actually take physical possession.

You have to have tons of cash over the next few months after signing…

Wrong. While by the time you move in, you typically do have to pay 20% of the total purchase price, but keep in mind that moving in could take you from 1-3 years – the condo needs to be built, right? – and that’s depending on when you buy. Sure, there are different payment structures for every project, but your final 5% won’t be due until the day you move in. You’d have to agree that stretching that out over up to 3 years sounds like a much more affordable option than forking it over on purchase day.

If mortgage rates go up, you’re in trouble…

No, you can’t get a mortgage until your condo closes. BUT… Each developer partners with a preferred bank that will lock you in at the current rate and hold that until you move in with full approval, which means you would be in the clear if rates went up. And if they went down? Well, the lower rate would get acknowledged and honoured. Sounds like a no-lose situation to us.

150 + 155 Redpath renderings. Via Freed Developments + Capital Developments.