Buying pre-construction condo as investment (Ottawa area)

[canabiz]

Folks, my brother just put a hold on a pre-construction condo as an investment with a closing date of late 2014. He has not signed the agreement yet so he still has time to back out if necessary.

I have experience with the house-building process but I don't know much when it comes to condo-building process. Is there any pitfall that he should be aware of? I know it's hard to visualize what the unit would look like based on the floorplan but that is all he has to go with for now. Is delay typical for condos in the Ottawa market? Tarion is there to protect the buyer, supposedly but are they?

My brother won't live there when the unit is complete so it's not the end of the world if the unit does not turn out exactly like what is in the plan right now but it's certainly good to know what we can expect so that there is no surprise.

Anyone bought pre-construction condos before, esp. for investment and any tips on things to watch out for?

Tks.

[Square Root]

I certainly would not be buying an investment condo now. Has he read the papers?

[kcowan]

The main risks are that the developer fails to get financing, and that the property values decline. If the building is not sold out, he may be faced with the developer clearing out remaining units for less than he paid. He should wait for those clearout sales or buy a resale unit.

[Cal]

Depending upon how he feels the RE market will go, assuming the condo does get completed by 2014, he may be able to pick up the same unit, from someone buying now, for a great price in 2 years.

[iherald]

The theory is that you pay $0.90 for $1.00 in the future. So you buy at a pre-sale on the assumption that it's cheaper today than it will be when its done. Will that be the case, I'm not sure, anyone who says that they are sure is being silly. But, my experience with condos in Toronto are that they are often delayed, and in many cases up to a year. In general they have to sell at least 75% of units prior to breaking ground. So if they don't reach that amount, they aren't doing anything. Hence the delay.

[sprocket1200]

Have him contact me. I have a bunch of those too. We expect it to work out at 77% on the dollar. Lower if he is more eager to give us the money sooner..... Our expected completion is very soon and date of possession shortly thereafter!! Who is in!!

[canabiz]

Folks, after doing further research and talking to realtors and friends who own investment properties, i have given my brother advice to look for a condo townhouse now, rather than waiting for 3 years for his condo to complete. Here are my arguments, please let me know if I am missing something or if I am way out in left field.

1. Eliminate the uncertainty in terms of interest rates. If he buys now, he can lock in at a very good rate for the next 3 years at least. It is only a matter of time before the rates rise and I don't know what will happens in 3 years.

2. Start building equity in the investment property right away, as opposed to waiting for 3 years before doing so.

3. There are a lot of investors who bought condos in this and other condo projects currently or will be under way shortly. As a matter of fact, he told me he ran into a previous neighbour who bought 2 2-bedroom units, presumably 1 for themselves and 1 to rent out. What it means is when his condo is complete in 3 years, he may have to compete with other investors for tenants. Couple this with the interest rate uncertainty in #1 above, I don't think waiting for 3 years is the optimal choice for him.

4. I suggest condo townhouse as an investment property for 2 reasons: it's generally cheaper than a new condo and has a better chance of generating + cash flow and the exterior maintenance is taken care of by the condo board. There will be condo fees but that's par for the course.

His counter argument is his friends bought pre-construction condos a few years ago and saw the value jump 50% from the time they signed to the time they took possession. I told him you can't look at past performance to predict future. He also does not see a problem renting out the unit as it is right in downtown Ottawa with a nice view of the Parliament Hill and the river.

[Four Pillars]

@canabiz - Is your bro even asking for your advice?

Nothing wrong with trying to help him, but the problem with this sort of thing is that nobody knows what will happen over the next three years with respect to real estate values, interest rates, rental rates/vacancy rates etc.

Your plan is as good as his and vice versa. I would just let him proceed with what he thinks is best.

[dvelecka]

I would suggest always doing your due diligence before signing the papers. Research the developer, their previous projects, financial statements... Also, weigh your options- calculate the numbers, financing etc., can you cover the mortgage and overhead costs by renting your property?
Here are some tips that may help you... the article talks about how you can pick a correction-proof property: http://bestofourmarket.com/2012/10/t...ment-property/

Folks, my brother just put a hold on a pre-construction condo as an investment with a closing date of late 2014. He has not signed the agreement yet so he still has time to back out if necessary.

I have experience with the house-building process but I don't know much when it comes to condo-building process. Is there any pitfall that he should be aware of? I know it's hard to visualize what the unit would look like based on the floorplan but that is all he has to go with for now. Is delay typical for condos in the Ottawa market? Tarion is there to protect the buyer, supposedly but are they?

My brother won't live there when the unit is complete so it's not the end of the world if the unit does not turn out exactly like what is in the plan right now but it's certainly good to know what we can expect so that there is no surprise.

Anyone bought pre-construction condos before, esp. for investment and any tips on things to watch out for?

Tks.

[Cal]

Sales are down 30% here in Toronto recently. There is a distinct possibility that the condo doesn't even get completed. Which helps your arguement #2. If it doesn't get build his money will be returned, but the investment potential of those dollars over that timeline will be lost.

http://business.financialpost.com/20...-sales-plunge/