5 Mistakes That PreConstruction Condo Investors Make
Mistakes happen every day. There’s no stopping them. Some mistakes, however, we cannot afford to make. When youinvest in a Toronto pre-construction condominium, you need to make sure you have all your bases covered.
In the third chapter of our Ultimate Guide to Buying Pre-Construction Condos, we’ve highlighted the how to identify a great condo project to invest in. To complement that, here are 5 mistakes that pre-construction condo investors make time and time again.
Buying at the wrong time
POTENTIAL COST: Tens of Thousands
DIFFICULTY TO CORRECT: Easy
This is perhaps the #1 mistake that most condominium investors make that can cost buyers literally thousands of dollars.
Most preconstruction condominiums follow a “Launch Cycle” that has consistently delivered results over the last 10 years. In order to secure financing to build the project, a developer must presell between 70 to 80% (usually around 75%) of the project.
Many developers try to sell 75% of the project as soon as possible so that they can begin construction and sometimes a developer has no problem selling the “last 25%” throughout the construction timeframe.
So let’s use an example of a project with 300 suites. The developer must presell 225 suites (~75%) in order to gain financing from their lender(s). The remaining 75 suites the developer will sell throughout construction.
A typical launch for a condominium can look something like this:
1: PLATINUM LAUNCH
A Platinum launch means the project is launched to Toronto’s “Platinum Agents”. These agents typically work exclusively with investors and are typically a vital link between the developers and the buyers. There are only 1020 “TRUE” platinum agents in Toronto and typically get the first access to the best projects in Toronto. Typically the best selection of suites, prices and incentives are available at this time.
2: VIP LAUNCH
The next stage opens the project up to “VIP Agents”, an agent who may have sold for the builder in the past but not as frequently as the Platinum Agent. There are approximately 300 VIP agents in Toronto. Prices are typically increased and incentives are removed.
3: TREB AGENT LAUNCH
The project will be opened to any agent on the Toronto Real Estate Board (over 30,000 agents). Again, selection drops, prices increase, incentives are removed. (Note: If you are not working with an Agent, you still have not had the opportunity to purchase at Toronto’s top condominium projects)
4: PRE-REGISTRATIONS
If you register directly on the builder’s website, you will now be contacted to tour the project. Again, at this time prices are typically increased, selection and availability decreases and incentives removed.
5: PUBLIC OPENING
The project is opened to the public. At this time you can walk into the sales office to purchase with the on-site sales staff. Note, by the time of the grand public launch there are already four groups that have purchased and typically for much lower prices.
The Best Times to Buy
a) AT THE BEGINNING – THE PLATINUM LAUNCH
Developers will typically launch with the best prices and incentives during the “Platinum Launch”, which is the initial launch for most developers. You will have the widest selection of suites during this period but you MUST be working with a Platinum Agent to buy at this time.
b) IF A DEVELOPER DOESN’T SELL ENOUGH FOR FINANCING
Understand that a developer is required to presell ~75% of the building, in the event that a developer is stalled at 6065% of sales, they may do a special sale to help them get financing in place so that they can begin construction.
These types of offers are typically not openly advertised and again, you must be working with
a Platinum Agent who has access to these types of promotions to have access. They do not
happen very often but can be an excellent opportunity to invest.
“The PreConstruction Condo Industry in Toronto is the only marketplace on the planet
that insider trading is not only legal, it’s encouraged”
In Toronto, developers are not shy to increase prices dramatically between the different sales
cycles. We have seen prices increase as little as $5,000 within a few days and we have seen
suites increase as much as $50,000 between Platinum Buyers and VIP Buyers.
Often times we can be made aware that a developer is able to sell “20%” at $300,000, but must
increase to $320,000 for the next 20% of sales. The preconstruction condo industry in Toronto
is the only marketplace that we are aware of that this kind of insider trading is not only legal, it’s
encouraged.
Buying at the wrong time or in the wrong stage of the launch cycle is the number one mistake
that thousands of condominium investors make every year that literally costs them thousands of
dollars.
Buying in the wrong location
POTENTIAL COST: Tens of Thousands
DIFFICULTY TO CORRECT: High (identifying locations with high potential, identifying
future growth patterns)
A “good location” is an extremely subjective term. What is a good location for me might not be a
good location for you. What is important is to make sure your investment condominium has good access to what urban buyers are looking for, and that is convenience.
Ask yourself the following questions:
a) Do you have good access to Transit (and if so, what kind of transit? Remember that Subway is preferred over Streetcar, and Streetcar is preferred over Buses)
b) Do you have good access to major amenities (Grocery Stores, Restaurants, Entertainment)(Check the sites Walk Score as a guide. Anything above 95 is very strong)
c) Is there any future plans that will enhance the neighbourhood (future transit lines? future
commercial development to add jobs? future retail development to enhance the area? any
unique future plans?)
d) Will your location attract the “Golden Ticket Profile” of buyers? The golden ticket profile in downtown Toronto includes:
- Financial District Workers (they typically require good transit access to Bay & King)
- Hospital Workers (They typically require quick access to the Discovery District nearby
University & College) - University Students (require access to UofT or Ryerson University)
Selecting the wrong floorplan elements
POTENTIAL COST: Tens of Thousands
DIFFICULTY TO CORRECT: Medium (Understanding Bad Floorplan Elements)
A usable floor plan is perhaps the most important element when selecting a suite within a
project. We speak to investors who have selected “bad floorplans” over and over again and can cost them thousands when the project is delivered.
In the example on the right, these inside corner units will receive very low natural light. Previously, we wrote an article about some floorplan elements you should avoid when buying pre-construction condominiums.
Buying based on emotion and not determining value based on resale condominiums
POTENTIAL COST: Tens of Thousands
DIFFICULTY TO CORRECT: Easy (taking the emotions out and looking at ROI)
We ask people about why they purchased in certain condominium projects and they tell us
things like “I loved the design” or “the balcony was incredible” or “the architecture was amazing”
(you’d be SURPRISED how often we hear this kind of thing!). These can all add to a great
project but they should not be the reason to invest in pre-construction condominiums.
The tried and trusted method for investing in pre-construction condominium is by comparing the
price to SIMILAR condominiums in the neighbourhood, which tells us what REAL BUYERS are
willing to pay to live in a given neighbourhood.
We have a number of examples of condominiums that were over priced but sold incredibly well
because of the unique design or certain amenities or features that investors fell in love with.
Putting too much emphasis on the view when selecting a suite
POTENTIAL COST: Thousands
DIFFICULTY TO CORRECT: Medium (pay more attention to the surrounding buildings)
This is another mistake we see time and time again. Many buyers in the pre-construction market will put a huge emphasis on the view and sometimes even at the expense of a usable floor plan.
Developers are well aware that buyers are willing to pay a premium for certain exposures and will price them higher, EVEN IF there are already plans in place to obstruct the views (a trend we have seen over and over again). Educating yourself on any future plans in the pipeline can help you avoid this issue.
As Toronto condo construction continues to grow, that view that you have paid tens of thousands of dollars for may never be realized.
A couple of points:
- An inferior” but protected view can be a better buy than the “prime view” depending on the difference in price.
- There is no consistent data to put a dollar figure on the price of a “prime view” vs. an “inferior view”.
- It is important to avoid major blockages (garbage, large signage, major blockages) A view in a condominium is a great feature but often times buyers pay a huge premium to get the best view that they may not see back in their pocket when it comes time to sell.
For more in depth insight and analysis into the Toronto condominium market, refer to our Ultimate Toronto Condo Investors Guides. Our interactive condo map has also made it easy to find the best condos in Toronto and the surrounding GTA.
