If you haven’t read last week’s post, stop where you are and click here! This post is in the second part of our series, where we now focus on the pros and cons of buying resale. Without further ado, let’s dive right in!
What you see is what you get
Regardless of how adept you are at reading a floor plan and no matter how high tech the sales office, it will never be quite the same as walking through a property, sitting down on the sofa, stepping out on the balcony and really feeling the space. Especially for the very visual, pre-construction is a bit of an abstract concept that not all buyers are comfortable with. In resale you actually get to see exactly what you’re buying and surprises are kept to a minimum.
With an typical close date of just 60-90 days from your offer being accepted, resale is definitely the more popular choice for end users as it can be hard to plan your life out several years in advance. As a first-time home buyer with mortgage and downpayment in hand, immediate occupancy can translate to thousands of dollars saved in rent.
Start paying off your mortgage immediately
A faster close means that you can start chipping away at the mortgage that much sooner! In resale, you begin to pay your mortgage down the moment you close, so in the years you would be waiting for your new condo to be completed, you – or better yet, your tenant! – will have paid several years in mortgage payments directly towards the principal of the property. So while the shiny new condo will likely sell/rent for more/sq ft when complete, it makes sense to consider what five extra years of mortgage equity looks like in your overall plan.
Lower closing costs
No levies. No HST. No miscellaneous developer charges. Your purchase will be subject to legal fees, title insurance and land transfer tax (x2 in the City of Toronto courtesy of David Miller circa 2008). Still nothing to sneeze at but still thousands less than preconstruction.
In a resale purchase, your condo is yours to do with as you please (within condo board rules and regulations, of course) pretty much from day one. As of the agreed upon close date, you can move in, rent it out or resell the property with no developer oversight or extra hoops to jump through. You can technically sell your interest in a preconstruction condo prior to closing via assignment but it is much easier to sell than assign.
You’ll need to have full downpayment upfront
Unlike pre-construction where you have months or even years to save for your downpayment, resale requires a full down payment within just a few weeks. This means that you have less time to save and/or are forgoing the opportunity to invest your capital elsewhere in the meantime. Just starting out, this can be challenging and may result in having to adjust your budget to search for properties at a lower price point to avoid chasing a rising market.
Dating and wear of your property
With the prolific rate of condo development in Toronto, renters and buyers alike have come to expect the new and the shiny. The upside of preconstruction is that at completion, you will likely have the sexiest, most in-demand building on the block complete with the latest suite finishes, most on-trend common spaces and new condo glow! A resale condo purchased at the same time will be beginning to show its age. Wear and tear is inevitable, particularly if you’ve been renting your condo out and/or it wasn’t brand new to start with. Older buildings may also have finishes or fixtures that are out of date from the start, so it’s not unusual for buyers to take on renovations or small updates before they move in or rent out their unit.
If you are buying a resale condo as an investor, the first thing you’ll want to do is find a AAA tenant to help carry the property so you are signing up to be a landlord from day one. Much more often than not, things go smoothly but even good tenants are a responsibility. In a worst case scenario, bad tenants can be a nightmare and unfortunately, Ontario tenant laws are pretty much always in their favour. Choose wisely!
So, what’s the verdict?
In summary, both of these purchase types have their own benefits – which is “best” is entirely dependent on your personal situation and goals.
For immediate end users, resale is generally preferred, as it allows you to move in quickly with little to no surprises. Preconstruction, on the other hand, is ideal for those planning ahead for downsizing, retirement or helping their kids get a foothold in the market as well as for investors who want a highly leveraged, low maintenance investment vehicle.
If you have questions about this post or want to learn more about building your own Real Estate portfolio, leave a note in the comments section below or email me directly at email@example.com.