# is it not a good idea to buy a pre-construction condo?



## Mulak (Feb 7, 2017)

I currently own a 1+1 bed condo 2 years now in oakville. It a 613sqft plus 107sqft balcony, on the 3rd floor, and it a 10 years old building.... I bought it for 285k and now selling in my building 370-380k.

I was thinking of getting a pre-construction condo that is pretty close to my current condo, probably a min drive away. I can get a condo at way higher floor, modern looking, walk in closet, and bigger den... It called Oak & Co by cortel group www.oakandco.ca and I met a platinum agent recently and told me the possible price range rate is $625-650/sqft and it could be lower but will find out the real price at the end of the month.

I currently have 75k and wanted to know if it feasible or a good idea to buy the condo, live in it for a while and hopefully sell it for a profit and add on to my equity and buy a house in the future.... or stay in my condo and hope the value of my condo still going up and wait until i'm ready to afford a house


what do you guys think?


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## kcowan (Jul 1, 2010)

Lots of people have made that kind of move successfully. It just requires an upward moving market during the whole transaction.


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## Davis (Nov 11, 2014)

Be sure you're aware of the risks. (1) The condo construction may take months or years longer than promised, so don't be too quick to sell your current home. (2) Developers can change floor plans after you buy, including reducing the size (I seem to recall by up to 10% in Ontario, but check that), or adding in columns that may break up the space. (3) Condo fees often go up dramatically in the first few years as condo boards find that the developer has set fees low to attract buyers, and they can't meet expenses. (4) If you buy on a lower floor, you may have to start paying rent when your unit is available for occupancy until the building is completed and converted to a condo. 

As Ken says lots of people have done really well with pre-construction purchases when prices are rising. Are prices still rising in Oakville?

Also, ask the builder whether you can buy upgrades as part of construction. This can save you money and hassle compared to doing the upgrades after construction.


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## Just a Guy (Mar 27, 2012)

I also know people who've done poorly with pre-construction purchases. The reasons are...

1) overbuilt market. Developers pump out tons of condos in a small area, demand isn't there, prices are stagnant or fall as developers try to dump excess inventory. Toronto, for example, has a lot of vacant condos that "investors" are just sitting on. Lots of paper profits, but what happens if they all try to sell at once?

2) market corrects. Prices fall in general. 

3) timeframe. Many people I know tried to flip the property, selling it within the (usually) final 45 day window before taking possession, so that they don't need to get a mortgage. The problem is, many other flippers are usually trying to do the same thing so multiple units all come on the market at the same time. You were going to hold on for a year or so, so this may not affect you unless you are in an early phase and more units come on the market later in a different phase of construction.

4) unaccounted for costs. Selling a house has a lot of costs which make it difficult to make profits short term. Remember to factor in realtor costs, legal costs, bank fees for breaking a mortgage, gst/hst which you don't get back, land transfer fee, improvements (let's say you repaint to list), etc. These are costs associated just with buying/selling which you generally pay unseen. So your sale price is actually quite a bit lower than the listed price. 

These costs really hurt "flippers", and it's never mentioned in any of those TV shows where they only show the difference between purchase price and selling price. Realtor fees alone can eat up a significant portion of your "profits".


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## Mulak (Feb 7, 2017)

kcowan said:


> Lots of people have made that kind of move successfully. It just requires an upward moving market during the whole transaction.


I can't fathom people going to pay possibly at least 450k for a 1+1 den when people going to sell or someone gonna flip their platinum priced condo



Davis said:


> Be sure you're aware of the risks. (1) The condo construction may take months or years longer than promised, so don't be too quick to sell your current home. (2) Developers can change floor plans after you buy, including reducing the size (I seem to recall by up to 10% in Ontario, but check that), or adding in columns that may break up the space. (3) Condo fees often go up dramatically in the first few years as condo boards find that the developer has set fees low to attract buyers, and they can't meet expenses. (4) If you buy on a lower floor, you may have to start paying rent when your unit is available for occupancy until the building is completed and converted to a condo.
> 
> As Ken says lots of people have done really well with pre-construction purchases when prices are rising. Are prices still rising in Oakville?
> 
> Also, ask the builder whether you can buy upgrades as part of construction. This can save you money and hassle compared to doing the upgrades after construction.


1. understandable, I know rarely developers finish on time
2. lol I don't like that ... thats shady knowing that I paid the sqft of the layout before the change... no thanks on column
3. platinum agent said possible range is .50-.55 cent per sqft for maintenance fee... right now my condo fee is $409/month and I have a 613sqft plus 107sqft balcony
4. I heard about that from the platinum agent, I was a bit surprised by that

well so far my condo been increasing for the past 2 years that I have own by 15% each year... I don't know if it will keep going for my condo or even the new condo in 3 years or so when it get built

I will ask the builder at the end of the month when the real prices released to the platinum agents



Just a Guy said:


> I also know people who've done poorly with pre-construction purchases. The reasons are...
> 
> 1) overbuilt market. Developers pump out tons of condos in a small area, demand isn't there, prices are stagnant or fall as developers try to dump excess inventory. Toronto, for example, has a lot of vacant condos that "investors" are just sitting on. Lots of paper profits, but what happens if they all try to sell at once?
> 
> ...


1. The developer is doing 4 buildings, 750 units in total ... going to take around 3 years for each one ... one after another

2. lol hope not... on other hand, it would be great for people who didnt buy it pre-con

3. I was planning to live in it and hoping maybe a couple years of living, the value will go up and sell it for a profit so I can afford a house

4. thats was one of my concerns as well... does the cost outweigh the profit from selling the new condo


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## tygrus (Mar 13, 2012)

When the project is finished, there will be dozens of people selling identical units to yours. What do you think that does to the price?

I like how people just assume things will keep going up.


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## Mulak (Feb 7, 2017)

tygrus said:


> When the project is finished, there will be dozens of people selling identical units to yours. What do you think that does to the price?
> 
> I like how people just assume things will keep going up.


yup I thought of that situation as well... market will be saturated with similar layouts and people priced lower to get competitive advantage

seem like you are on the side for me to not buy the new condo and just stay in my current condo and wait until I can afford a house


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## tygrus (Mar 13, 2012)

People dont sell preconstruction condos after completion, they dump them in a firesale. If you buys a preconstruction, buy most unique unit you can afford and negotiate extras, like parking and storage.


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## james4beach (Nov 15, 2012)

I've never looked into this but asking out of curiosity. Is it possible that the developer runs out of financing and cannot complete the construction? What happens then?

I'm thinking of situations like Miami Florida with their condo bubble into 2008. The Miami skyline was full of cranes, just like Toronto.


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## Just a Guy (Mar 27, 2012)

It happens, the developer declares bankruptcy, the property goes into foreclosure, gets bought by someone else maybe completed properly, maybe not. Sometimes it's bought by the same developers under a new name.

A lot of developers used to terminate the company after completion too. Got them out of warranty issues.

Not all developers are crooked, but this stuff isn't exactly uncommon.


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## Mulak (Feb 7, 2017)

tygrus said:


> People dont sell preconstruction condos after completion, they dump them in a firesale. If you buys a preconstruction, buy most unique unit you can afford and negotiate extras, like parking and storage.


I was planning to live in it for a year or two and then sell it

but my concern is what if there is a housing development in 2 or 3 years that I can actually afford and I can't do it because the money I saved up is tied up to the pre con condo's payment structure or resale house... also it possible the new condo high prices can drive up my condo prices like it did in the past, it might be better to stay and not have to pay the fees, taxes, lawyer, realtor agent to the new condo

there are only two 1+1 bed layout plans from floor 6 to 25 and 5 different 1+1 bed layouts only floor 3-4... but 3-4 floors aren't great because they are too low and possibly noisy because it back to one of the busiest roads in oakville but it got terrace (at least 100sqft depending on layouts) unlike floor 6-25 with normal balcony


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## tygrus (Mar 13, 2012)

My advice is to never buy anything that doesnt have land you control under it. Condos dont qualify.


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## Mulak (Feb 7, 2017)

tygrus said:


> My advice is to never buy anything that doesnt have land you control under it. Condos dont qualify.


I agree on that ... it just all I can afford at the time and luckily for me that my condo value increase almost 100k in equity in two years so it will help to put a huge down payment on a house

House prices still increasing which sucks


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## Spudd (Oct 11, 2011)

There's really no point if you're just going to live there for a couple of years. The realtor fees will kill any possible profit. Just stay put.


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## tygrus (Mar 13, 2012)

Spekkers will still be dumping units 2 years after possession.


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## Mulak (Feb 7, 2017)

Spudd said:


> There's really no point if you're just going to live there for a couple of years. The realtor fees will kill any possible profit. Just stay put.


Ok

I have like 70k right now and I'm renewing my mortgage next month... should I just down pay the principal?



tygrus said:


> Spekkers will still be dumping units 2 years after possession.


Spekkers?


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## awesomeame (Nov 15, 2011)

james4beach said:


> I've never looked into this but asking out of curiosity. Is it possible that the developer runs out of financing and cannot complete the construction? What happens then?



YES. This does happen, or similar situations, and has happened recently in both Etobicoke and Hamilton. Buddy billionaire thought he could get into real estate and decided he would build a condo with no building experience. Sells all the units in 2011 and starts building. 2017...barely concrete in the ground, all kinds of problems, banks take over. Original buyers get their deposit back (think 2011 prices) and 15% finished building is basically sold off at auction. http://www.cbc.ca/news/canada/toron...-lose-homes-after-development-fails-1.4056699

Matt


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## awesomeame (Nov 15, 2011)

That being said...research the builder.

Matt


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## Mulak (Feb 7, 2017)

I'm curious on maintenance fees .... does more amenities means more maintenable fees?


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## Just a Guy (Mar 27, 2012)

It depends...usually a developer sets the fees really low to attract buyers. Of course, everything being new means low maintenance bills, so everything looks good...

Of course, in reality, long term expenses are also wearing out (roves, parking lots, infrastructure, siding, etc.) things no one really thinks about or notices. Instead of having proper condo fees that starts banking the money required to do these repairs (no one likes to see a lot of money sitting around in a reserve fund, they feel a need to spend it), people demand low condo fees. 

In the end, reality sets in and you get hit with large fee increases and special assessments to pay for the neglect. If the condo fees are set properly, it's amazing how well a comdo could run. Remember, emergence repairs typically cost significantly more than planned expenses. Unfortunately, most homeowners are more concerned about this month's fees not the roof being replaced in 5-10 years.


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## Mulak (Feb 7, 2017)

Yeah I get that 

I checked out the developer recent built condo... similar sqft as my condo, 1+1 bed .. the maintenance fees is 500-600/month 

My condo fee is 409/month and it a 10 years old building

Could it be possible that the developer will pull this stuff as well with the pre-con or is it because my condo have less amenities therefore less fees.. my condo doesn't have library, indoor pool (but have outdoor), yoga studio, games room and some sort of discovery room (assumed conference room) that the new condo will have


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## Just a Guy (Mar 27, 2012)

Hard to say without seeing the financials, which probably don't exist yet as it's a preconstruction. The government has been trying to legislate their ability to do things like this away, but that's pretty futile since there are always creative ways to get around legislation.

Also, remember that the board can always make changes. Many board members have little to no business sense and are motivated mainly by their own wallets. Keeping fees low is often a priority. Owners, non board memebers, often never respond unless there is a crisis. Just try getting the 75% approval needed for making major changes (like passing new bylaws). It often takes years of hounding owners, even when it's to their own benefit. 

That's one of the reasons I prefer smaller condos over large complexes.


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## Mulak (Feb 7, 2017)

Just a Guy said:


> Hard to say without seeing the financials, which probably don't exist yet as it's a preconstruction. The government has been trying to legislate their ability to do things like this away, but that's pretty futile since there are always creative ways to get around legislation.
> 
> Also, remember that the board can always make changes. Many board members have little to no business sense and are motivated mainly by their own wallets. Keeping fees low is often a priority. Owners, non board memebers, often never respond unless there is a crisis. Just try getting the 75% approval needed for making major changes (like passing new bylaws). It often takes years of hounding owners, even when it's to their own benefit.
> 
> That's one of the reasons I prefer smaller condos over large complexes.


seem like I have to stay in my current and deal with it until I can afford a house

would be nice to get a newer condo lol... just risky of the possibility that fees could be $100 -200 more than what I'm paying now


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## Just a Guy (Mar 27, 2012)

I'm just providing you with some knowledge of the other side of the coin which many people don't consider. I'm not saying don't do it, I buy condos all the time because they make me money, but I do it from an informed position. I also get involved to try to fix any problems as well.


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## Mulak (Feb 7, 2017)

Just found out the 1+1 bed condo 650sqft starting price is 418k, .51/sqft maintenance fee, 1% property tax, 1k per floor premium 

It right on the corner of trafalgar and dundas in oakville if anybody here know where that is


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## Just a Guy (Mar 27, 2012)

Half a million for one bedroom...what a steal, I just won't say for who.


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## Mulak (Feb 7, 2017)

Just a Guy said:


> Half a million for one bedroom...what a steal, I just won't say for who.


Lol are you mocking/being sarcastic?


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## awesomeame (Nov 15, 2011)

Just a Guy said:


> IIn the end, reality sets in and you get hit with large fee increases and special assessments to pay for the neglect. If the condo fees are set properly, it's amazing how well a comdo could run. Remember, emergence repairs typically cost significantly more than planned expenses. Unfortunately, most homeowners are more concerned about this month's fees not the roof being replaced in 5-10 years.


Which is why I sell every 4-5yrs. No big jumps in maint fees those first few years, and on paper it all looks rosey to potential [uneducated] buyers.

Matt


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## Just a Guy (Mar 27, 2012)

Good plan, as long as interest rates stay low (unlikely) and prices don't correct.


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## awesomeame (Nov 15, 2011)

Agreed. But any corrections that are happening now or will happen will affect detached houses the most. Right now there is no change in my area for small condo or townhouse prices. I wouldn't be putting any money into detached anything right now...

You mentioned you buy and sell condos all the time-where are you doing this? I just pre-construction purchased in the Newmarket area. My cousin bought there two years ago there for $500k, and now in her area townhouses are now $700+..and it's still a freakin' construction zone.

Matt


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## Just a Guy (Mar 27, 2012)

I buy wherever (don't usually sell) I can find affordable places I can make into a rental. My price range is in the sub-100k range and I tend to find them a handful of times per year. They usually appraise out significantly higher, especially after renos, but I tend to buy places that are priced well below market. Right now that tends to be foreclosures, distressed, or estates.

As for valuation, condos tend to depreciate faster and further than detached housing when a correction starts and take longer to recover. Right now they are booming because no one can afford detached, but most people aspire to a non-communal lifestyle if they get a choice.


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## awesomeame (Nov 15, 2011)

Where do you find places so cheap, sub-100k? How do you source these types of properties? Do you have any issues with renters of that kind of market? At my condo meetings I always chat with owners who rent their units, and they all say stick with more expensive properties/areas to get for lack of a better term "good renters."

Matt


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## Just a Guy (Mar 27, 2012)

I have realtors send me a list of every property that hits MLS within certain criteria. I cast a wide net. My knack is being able to find the diamond in the rough. I find properties at least 50% under market. 

As for my rent, I don't do slums. My rents are usually in the mid range. My goal is to house middle class types. As for tenants, you get good ones, you get not so good ones, it's part of the business. Screening is important. I've had bad tenants in expensive properties, the difference is the cost of the repairs afterwards. Money doesn't make good people.


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## awesomeame (Nov 15, 2011)

This for sure interests me. Do you do all your own property management, or use a service? Any tips on screening besides looking at credit score?

Matt


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## Just a Guy (Mar 27, 2012)

When you start you usually need to do the work yourself. Not many property managers want to deal with a single unit. When you get bigger, you need to hire people to work with you. 

As for screening, if all you're doing is checking credit scores, you'll probably run into trouble. I have an extensive application form, it's designed to produce red flags by some of the questions it asks. You can do background checks, reference checks, etc. Heck, even google them or check social media you'd be amazed at what can come up. There are Services out there that do this for you. 

If you dig through my old posts (sorry there are a lot of them) I have gone over how I do things in quite a bit of detail. Another good place to start is with the book on www.easysafemoney.com. It's a good beginner book. 

There was also another guy on here named Matt who was doing some YouTube videos. https://m.youtube.com/channel/UCdRtqnqBSq4GY7DGiYICu5g


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## Mulak (Feb 7, 2017)

I apologize ...my mother want me to rehash the situation again...she want me to get the new condo and I'm still on the fence 

i just found out from my VIP agent today that the developer assigned me on the 13th floor...Wanted 10, 12 or 14 floor because even numbers floor got twice the sqft for the balcony which is 62sqft.

my current condo...http://www.oakparkcondominiums.ca/2379- ... rtyard.php
- 1+1 bed, 3rd floor, north view
- 613sqft plus 113sqft balcony
- bought it for 285k, selling around 370-380k in my building
- $409/month fee, pay electric
- it a 10 years old building
- got outdoor pool, somewhat of a gym, party room, outdoor lounge and media room.

new condo... http://oakandcocondo.ca
- estimated to be built may 2020
- 1+1 bed, 13th floor, north west view
- 650sqft plus 30sqft, currently trying to get the bigger balcony (62sqft) which is an additional 2-3k more
- A walk-in closet, higher floor (better view), it got a smaller oven/stove, better entertaining space because of the layout of the kitchen/island
- 424k plus cost of the island
- 0.51/sqft maintenance fee, plus $50 parking, $15 locker, pay for gas & electric
- got an indoor pool, gym, yoga studio, party room, outdoor patio, games room, library and lounge


old or new condo?... oh also I have 60k cash to help deal with the difference between the two to have similar mortgage payments


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## bgc_fan (Apr 5, 2009)

I am a little late to the conversation, but what is the motivation? Location is almost identical, Unit size is practically identical. The age of your current is not overly old. Are you just thinking that the newer unit will appreciate more by the time you are ready for a house? You say you bought for 285k, so what is left on it? Why not just pay down your current and be done with it? Let's say you end up with 2% realtor fees, you need the new condo to appreciate at least 16k more than your current condo by the time you sell to break even. Given the slow down in the market, why not take and leave the possible gain you already have instead of hoping for a better one? For example if all of a sudden there is a 10% correction, your current one would still be worth more than what you paid for it whereas you would have a loss on your new one.


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## Mulak (Feb 7, 2017)

bgc_fan said:


> I am a little late to the conversation, but what is the motivation? Location is almost identical, Unit size is practically identical. The age of your current is not overly old. Are you just thinking that the newer unit will appreciate more by the time you are ready for a house? You say you bought for 285k, so what is left on it? Why not just pay down your current and be done with it? Let's say you end up with 2% realtor fees, you need the new condo to appreciate at least 16k more than your current condo by the time you sell to break even. Given the slow down in the market, why not take and leave the possible gain you already have instead of hoping for a better one? For example if all of a sudden there is a 10% correction, your current one would still be worth more than what you paid for it whereas you would have a loss on your new one.


yeah it one of the reasons that my mom think the newer unit will appreciate more. I have 216k left on the mortgage, the bank said it not a great idea to pay down my current and put the money in an investment. But he doesn't know the new condo development because i'm doing my mortgage renewal this month and don't want to mess it up, I wanted to wait until I sign the paper. 

I'm in the tower 1, very first building and the VIP opening weekend was a week and half ago. the agent told me that the turnout was so huge the developer decided to release tower 2 at the same time because so many people submitted to get a unit. my mom thought tower 3 and 4 will increase in prices again and again which will help the value for tower 1 to sell at a higher price

oh ...also forgot to mention the difference in features...the new condo got a walk-in closet, higher floor (better view), it got a smaller oven/stove, better entertaining space because of the layout of the kitchen/island


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## Mulak (Feb 7, 2017)

here are the two condo layouts


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## Just a Guy (Mar 27, 2012)

You sound like you're getting conned by a professional high pressure salesman...

Let's talk about "appreciation" here for a bit. Your current place cost you $285, the new place will cost you over $425k, but won't be ready until 2020.

You say your current place is worth $375k, so you've already "made" 100k. 

The interest rates are currently increasing. From what I've heard, the bank is thinking they can continue to increase rates a little going forward (expecting .5% by the end of this year from the sounds of it). That gets us to 2018. On a place that costs $400k, that "small" increase means about an extra $200/month in mortgage payments just by 2018. What's going to happen by 2020? Maybe it only goes up another 1% total ($400/month). That means, the same place now costs a buyer $600/month more to own than it does today. Do you think that number is going to affect the average buyer? What do you think is going to happen to demand?

What happens to prices when demand lowers? Prices tend to drop. Your current $375 place may now be worth closer to $285 (where you got in) whereas your brand new $425 place will be trying to sell at a discount. 

But hey, what do I know, I'm not a VIP salesman who works on commission and only gets paid when you agree to sign (and gets paid more the more you pay). Remember, the only risk in it for him is you not buying. For someone with real estate exposure, I tend to worry about the future so I try to see where the trend is going, not the hype. Of course, I could be wrong, but if I was would you suffer or still benefit?


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## Mulak (Feb 7, 2017)

Just a Guy said:


> You sound like you're getting conned by a professional high pressure salesman...
> 
> Let's talk about "appreciation" here for a bit. Your current place cost you $285, the new place will cost you over $425k, but won't be ready until 2020.
> 
> ...


lol don't say that on being conned

that is my concern regard the interest rates might be quite a bit higher in 2020

my condo building is actually the oldest in the area .. there are a few newer buildings nearby that priced higher and another one building right in front of my building which was selling it last year and going to be built next year or 2019. I remember the similar sqft going for 350k... it possible that when it built, it could sell it low 400k becausee of oak & co price selling around 418k to start for 1+1 bed

no clue if I suffer or still benefit lol ... what if the future phases/towers set at a higher price which make my building more attractive to sell


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## Just a Guy (Mar 27, 2012)

Don't confuse asking price with selling price. There can be a huge difference in real estate. Also check out the number of sales, one fool doesn't make a market.


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## nobleea (Oct 11, 2013)

The condo fee on the new place is for sure being low balled. It will go up anywhere from 25-50% within a couple years of the buildings being completed. That's pretty standard. And if they say it'll be ready in 2020, it will be more like 2022. There's a chance it might not even go ahead if things continue to slow down.

Most people in condos never use their balcony. Maybe to house a bbq and store crap, but generally you will never find people out sitting on their balcony.

If you want a new, shiny place, for sure go for it. Don't try and think of this as a good investment or look for a good return. Because financially this is not a good idea. I've never heard of a VIP salesman. I might have to steal that concept as I didn't think people would be that gullible.


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## Mulak (Feb 7, 2017)

thats a big increase in percentage for condo fee

now i think about it ... that is true that i don't see people on their balcony when I drive by ... weird

take consider your advice stating this is not a good ROI

i think VIP salesman just a fancy way of saying an agent got early access to the developer before releasing it to the public with a higher price... could be wrong myself


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## bgc_fan (Apr 5, 2009)

Mulak said:


> thats a big increase in percentage for condo fee
> 
> now i think about it ... that is true that i don't see people on their balcony when I drive by ... weird
> 
> ...


I think you have made your decision, but think about practicality. You will be living in your current unit until the new one is built correct? Why live there for another 3 years just to move for 2 years in a new unit? Is it really worth it to you to have that walk in closet and kitchen layout? Don't think about resale value, think about whether you really want these seemingly minor things. You say a better view, but are you just facing another building? What difference does height really matter in that case?

I don't quite understand your concern about new condos pushing up the price of your unit. Isn't that a good thing? Another thing to think about when it comes to value, location is important, but so is price of the house or unit. Unless you have money to burn, one tends not to buy the biggest or most expensive unit because the upside is not that high. There will be a limited resale market. Instead you go for the modest middle of the road unit as that will probably appreciate more.


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