Thank you . (Shutterstock, iStock, Getty Image, Pexels, Adobe, Pixabay) for the use of the feature photo that I cut and scraped from an internet site…..I had no idea.
In the past 2 years we have had numerous new home construction sites launch in the Blue Mountains WindFall, Crestview, Snowbridge, Wyldewood Cove, Silver Glen Preserve and Lora bay to name a few. There are lots of failures that happened before due to the economy, timing, municipal and county development fees and the general economy.
Possible reasons why you might want to purchase a pre-construction property and not resale?
• Lower purchase price –The buyer is helping the builder finance the project with the support of banks and other institutions. Without consumer interest there won’t be a project. I would have a huge expectation that I would be receiving abetter price at the launch than after the project is fully sold out.
• Interestingly enough your mortgage doesn’t start until you receive title of property or ultimately meaning…. that you are progressively paying your down payment instead of paying up front. BTW you can still utilize your line of credit but banks are not usually interested in loans for this purpose.
• You get to live in a place that’s never been lived in. #OCD
• You get to choose the finishings and upgrades It maybe be possible to make some changes to floor plans and the general layout.
Projects in the Blue Mountains usually take from 1-3 years from the first shovel to the final occupancy, which is granted by the building department. Things change so you may want to consider what your future lifestyle will bring IE family, retirement, cash flow?
Typical deposits for a resale property is roughly 5-10%. But that depends on the area because as little as anything is considered tender for a deposit, but that’s another blog. In most pre-con deals the builder takes a deposit of $5k with the balance of the 5% due in 30 days. 5% in 120 days, 5% in 365 days, 5% in 720 days with 1% due on occupancy in which your mortgage should kick in. Thats a grand total of almost $97,000 on a property that sold for $500k. On a positive note the deposit time period is over a longer period than a resale, which allows for a longer savings period while hopefully your investment will go up in value.
Please note your deposit is protected If you sign an Agreement of Purchase and Sale for a new home or condominium and you give the builder a deposit. Tarion protects those funds up to certain limits in the event that:
• your builder goes bankrupt;
• your builder fundamentally breaches the purchase agreement; or
• you have a statutory right to treat the purchase agreement as terminated.
Before treating your purchase agreement as terminated, and to ensure that your deposit claim will be covered by Tarion, you should consult a lawyer.
There are also other options that may be advantageous to getting involved in a pre-con. It maybe possible to assign the agreement of purchase and sale to another party. So in the above example you purchase a property and before the last deposit you assign the APS (sell) to someone else while hopefully making a profit. Note not all are assignable! The builder usually has final word and in some cases may not allow it because they still have inventory or they just don’t want too. Please note not all MLS systems will allow marketing of assignments on individual boards. The Ontario Collective of Southern Georgian Bay is one board, which is archaic thinking in my opinion. TREB allows realtors to market on their system but not on our local board. So we utilize the TREB board and market exclusively in this area which is a loss for local buyers and sellers in my opinion.
Remember there are tax implications if you are purchasing as an investor and this is not your Principle property
If you are planning to make the property your principal residence you will qualify for an HST rebate. (Ask your lawyer or accountant as this is above my pay grade to figure out how much HST will be applicable. Pre construction projects do get charged HST. If your plan is to lease out the property than you will be subject to the HST without the rebate. For example, a $500,000 unit is about $65,000 in HST which could be a large savings and incentive to purchase in pre construction if you are going to consider this your principle residence.
Finally plan on the project being delayed. There are just to many balls in the air for every builder, from permits to labour there are just to many variables that out of their control.