Also, if the unit falls in value before closing, you are on the hook for the originally agreed purchase price, which no bank would lend to you as a mortgage. Buying pre-construction is not low-risk. It can destroy your finances through leveraged exposure to undiversified risk (condo market in a single city).
I would personally never buy preconstruction, even if its for rental purpose, I want to see the final product. These developers take you for a walk through the park, then all of a sudden floorplans change and you have a washer and dryer in your bedroom closet. Also preconstructoin is a bet on the market price in however long it takes to build, you can often find older inventory for less and better value. I don't know about Ottawa though. In the spring downtown Toronto condos were asking $700psf for buildings completing 4 or 5 years from now, have already adjusted down 10-15% to $600-630psf. They could get pushed back even longer, and if it takes too long I suspect many won't ever get built.
Where does your brother want to live? He should factor commute time to/from work and other daily conveniences in his decision as well. Townhouses aren't usually built in the core, pretty typical for mid-town, though you'd have to dish out extra for a monthly bus pass. I live downtown and with access to the pedestrian tunnels I can walk/bike everywhere I need to be year-round. Spend maybe $30 a year on public transportation.
I'm with ddkay.
There's much less stress when you know what the final product is.
I live in Ottawa, south of the city now, and we used to own a condo downtown for a few years. We enjoyed it but even then it was older condo; there were issues we weren't happy with. The Ottawa condo and real estate market has always been in a bit a bubble, but that is changing. There's lots of great properties on the market and with boomers retiring and downsizing in this city, more properties should be available in the years to come.
If he really wants the condo, I would suggest doing some detailed research on the builder, looking at their previous work, talking to owners of other properties, financials, etc.
Ottawa is a great city and there are so many resale places to live without all the uncertainty. Just my two cents.
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All good points, folks
@Mike, he has asked me to give him some feedback and I certainly don't want my sibling to get into financial difficulty so I am simply trying to gather as much info as I can to help him make an informed decisions. We have talked to real estate agents, mortgage agents, friends/colleagues who own investment properties, doing research on the Web and various forums (including right here on CMF)
I have told my brother to walk away from this deal. For the record, the builder is Broccolini and the project is the Slater (corner of Bank and Slater). Broccolini is a big developer from Montreal who has built some commercial buildings in Ottawa but I believe this is their first venture in the residential condo market, at least in Ottawa. I have no reason to believe they will not deliver the project on time but that is not what we are mainly concerned about.
I think the location is fantastic as it is right downtown, close to all public transit (including OC Transpo and future LRT) and the unit he put a hold on is near the top level with a nice view of Parliament Hill and the River. I also agree with him that there should not be any problem finding tenants after all is said and done.
But that's neither here nor there as there are just too many unknowns with pre-construction. Anything can happen between now and 2015 (when the condo is slated to complete). The interest rates may rise and it will, there may be delays for the project, he may not even have his solid gig right now with all the government layoffs, the condo market in Ottawa may be over-saturated like it is in Toronto right now...I am a firm believer in you should do what you can within your control and he certainly does not have a lot of control, if any, over this.
do not forget that the purchase price probably doesn't include HST. since it's a rental property, he won't be eligible for the HST rebate. he can apply for the HST rebate for a rental property only after 1 year of renting, which locks him into the property for another year. you shouldn't necessarily try to sell so soon anyway, but just another one of those things to consider.
there are always risks that come with investing in pre-constructed condos.
Interesting thread - I realized it's a month old, but I thought I'd add a recent story about a friend of mine who bought pre-construction in Ottawa from one of the more reputable builders in a prime location. He bought about a year ago - with completion scheduled in 2014. Since he bought, the sales figures haven't changed for the building - still at 50%. The developer has changed the floor plans *significantly* 3 times... from a 1 bed 1 bath, large living/dining/kitchen... to a 1 bed 1.5 bath smaller living room... to finally a 1 bed+den, 1 bath, miniscule living room/dining/kitchen. He's planning to live there, though is also hopeful of making money on it for investment reasons. Currently, there are several units available for around the same price in recently completed buildings nearby... and condo prices appear to be at best static, if not beginning to trend downward a bit in Ottawa... we'll see what 2013 and 2014 bring, but in 2012, most condos sold went for well below their MLS asking price - sometimes significantly lower. I can't predict the future either, but I think he'll be lucky if it only costs him a comparable amount to what it would cost a renter. The days of buying a condo and having it be an easy investment appear to be well over in Ottawa.
For the record, I was looking at buying a condo in Ottawa earlier last year, but after some careful math, found out it was cheaper to rent an apartment downtown - or that you could buy a nice SFH in a not too distant part of the city for the same as a downtown condo.
My friend came to me in June 2011 with Idea to buy a condo in a pre construction at a subway station in Toronto area.I declined that but he went ahead and because he had entire $45,000 cash up front to put down he negotiated for free granite and a parking spot which today they sell for $28,000.The unit does not close until Jan 2015 and he has made $82,000 on paper so far.Who knows if there will be a pull back but when his unit is ready he will have a 25 year old daughter who will be moving into it.For myself it just didn't work with my other plans I have ,but I am kicking myself for not buying one lol
Don't forget, with real estate, you never know the true value until you have a cheque in your hands. Many real estate investors have a lot of net worth on paper, but there is a big difference between on paper and on hand.
I'm not JustAGuy (without spaces).
I would not rather buy a condo for an investment instead I want to look for a lot that is commercial to all establishments and build an apartments for a good investment. Safety of the lessor is the priority of course. Pre-constructed condos basically has a lot of problems especially if they did not pay the full amount of it and you need to have a negotiation on this matter.
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