Buying Preconstrcution Condo is a popular way of Real Estate Investment. It gives you the time to wait for the market to grow. You don’t need to worry about the mortgage payment. If market goes well, you already made some profit on closing. But do you really know everything about preconstruction condo? Is there a catch?
The following lists the things you should know before purchasing a pre construciton Condo.
- It is often delayed
When you are buying the pre construciton condo, the builder will provide you a date of completion. It is usually 3 to 4 years from the date when the sale started. However, it is often delayed. From my experience, it is common to delay for another one or two years. So, please plan things accordingly. Also, please pay attention to the last completion date on the Tarrion Warranty. Beyond that date, you can get your deposit back.
2. You could change your mind
As a buyer for pre construction condo, you have 10 days cooling off period after you sign the contract. If you changed your mind within the 10 days, you could return the unit and get your deposit back. This is required for all the preconstruction Condo project. But it doesn’t apply to low rise so some of the low rise projects don’t offer the cooling off period.
3. You might need to be mortgage pre-approved
More and more Builders require the buyer to obtain the mortgage preapproval to firm a deal. No matter you plan to assign unit or close it, you might need to get mortgage pre approval before proceed.
4. You need to pay rent during occupancy period
Pre constrution Condo has two closing dates. One is called occupancy. It is when the construction is completed. But you don’t own the title of the unit.
Another one is called closing. It is when you actually are on title of the unit.
During Occupancy period, you need to occupancy fee every month to the builder, similar as rent. The amount is close to the mortgage payment. Some of the builders allow the buyer to rent the unit out during occupancy, but some don’t.
5.More Closing Cost Than Resale Ones
Other than Land transfer tax and lawyer fee, there are extra fees at closing.
5.1 Development Levies
This is charged by the government for the use of the public resources, like community centre, park, schools and so on. Most of times, the development levies are capped. For example, for Downtown projects, it is usually capped to $10k for one bedroom unit and $20k for 2 bedrooms unit.
5.2 Meter Installation Fee
This fee is to install utility meters. It is usually capped for $5000.
5.3 Tarrion Enrolment Fee
Tarion Enrolment fee is about $1000.
If any of above is not capped, or clear stated, please talk to the builder. I have helped my client negotiate with builder many times to get closing cost capped. Just remember, anything is negotiable.
6. You might not be able to assign the unit
Some builders don’t allow the buyer to assign the unit before closing. Please check with builder if they allow assignment. If they do, please also check what the conditions are and how much it would cost.
7.You might not get what you expected
There are some risks associated with buying preconstruciton condos.
One of them is the unit you receive might not be what you expected.
On the contract, the builder normally will state any change due to the grading or unforeseen issues, builder won’t be responsible and the buyer has to take the unit. Just keep in mind with that.
The above is what you should know before you purchase a preconstruction condo. Hope it helps.