Are you planning to buy a pre-construction condo in Toronto? Buying a pre-construction condo is one of the smartest strategies for getting into the real estate investment game. You get a unique opportunity to buy a condo at its lowest possible price and a chance to select the best units that can generate the highest return on investment.
However, as a real estate investor, you need to understand that every pre-construction condos project is unique. For you to have a profitable venture, there are certain key mistakes that you need to avoid when buying a pre-construction condo.
In this guide, we look at these common mistakes that investors make when buying pre-construction condos and give you tips on how you can avoid them.
1. Not working with a reputable developer
Before you purchase a pre-construction condo, the first thing that you need to do is to determine whether a particular developer is legit and experienced. Start by conducting a background check to determine if the developer is reputable and has the right prerequisite experience in condo real estate development.
Don’t be enticed by affordable pricing only. Instead, focus on the developer’s track record in relation to delivering quality projects, meeting the set deadline, transparency, and commitment to bringing the pre-construction project idea to fruition.
Always conduct due diligence on various developers before you can commit to working with one. By doing so, you will weed out all the unreliable ones and avoid making huge mistakes in your pre-construction condo-buying process.
2.Not working with a real estate attorney
Before you can commit to buying any pre-construction condo, it’s very important to seek legal advice. There are many technical aspects of a pre-construction condo purchasing agreement that an ordinary investor can’t comprehend. Therefore, it’s advisable to consult an experienced real estate lawyer to guide you in your condo-buying process.
A real estate attorney will break down the legal terminologies to help you understand your rights and responsibilities as a condo owner. A real estate attorney will review the contract terms, developer’s background, and disclosure statement, and handle all the other paperwork needed for a smooth pre-construction condos process.
Your real estate attorney will act in your best interest at heart to ensure that you don’t lose your money by entering into bogus deals.
3. Getting excited by the floor plan
The floor plan of a model pre-construction condo suite can be deceptive as it may change during the construction phase. The initial floor plan design is never cast on stone and it can change at any moment if there is a need to create more space or addition of other features.
Always be ready to work with a flexible floor plan when buying a pre-construction condo as new changes can be effected at a later stage if the developer deems it necessary. Once you agree to sign the purchase agreement, understand that the builder has the power to make changes to the initial floor plan and design layout to make the condo more functional.
4. Not factoring in other associated fees
Buying a pre-construction condo requires proper financial planning as there are other expenses that buyers need to consider. If you are purchasing your pre-construction condo through mortgage financing, you need to budget for the monthly interest rates and other related costs.
Insurance fees, utility bills, parking fees, and service charge fees are some of the common expenses that you need to budget for when purchasing a pre-construction home. Without proper financial planning, these pre-construction condo ownership associated costs can easily add up and become overwhelming to sustain.
5. Being enticed by a model suite
Many buyers get easily enticed by spectacular model suites forgetting that there is a huge difference between the model and the real condo units. All model suites for pre-construction condos are professionally designed and decorated with the latest fixtures and finishes.
However, you need to understand that there will be some discrepancies when the actual condo units are constructed. The primary aim of model suites is to attract potential buyers. As a result, they do not necessarily give a true representation of the actual unit finishes.
Model suites are designed on a bigger scale than the actual physical condo unit to persuade buyers that they are spacious. Also, their unique finishes and fixtures can give you a false luxury feeling if it’s your first time buying a pre-construction condo.
Therefore, make sure you have other positive factors that are pushing you to buy a pre-construction condo apart from the splendid model suite which will slightly differ from the actual condo unit.
6. Underrating closing costs
When buying a pre-construction condo, you need to set aside money to cater to the closing costs. If you are a first-time homebuyer, there is a high possibility that you might overlook the closing costs if you don’t work with real estate experts.
However, closing costs of a pre-construction condo constitute a significant amount and they can put pressure on your finances if there was no proper prior planning. Consider hiring a real estate broker who will guide you on the common closing costs that you should budget for.
Common closing costs that you should keep in mind when buying pre construction condos include; land transfer taxes, HST, development fees, legal fees, and registration fees.
7. Not engaging a real estate attorney to review the purchase agreement
When you sign a purchase agreement to purchase a pre-construction condo with a developer, it becomes a legally binding contract. One of the common mistakes that many first-time homebuyers make is to sign a purchase agreement without a proper understanding of the terms therein. Always hire a real estate attorney to review the purchase agreement before you can agree to sign any purchasing document. Your lawyer will break down the complex legal terms to help you understand what the agreement entails in simple language. If there are any red flags that you should watch out for, your attorney will explain them to you.
Also, your attorney will advise you about the 10 days grace period where you can cancel a contract without any penalties if you are dissatisfied with the developer or a particular condo project that you had signed for.
Understanding the dos and don’ts of buying a pre-construction condo in Toronto can save you from making costly mistakes. If you want to enjoy an efficient condo-buying process, take note of the above common mistakes that most first-time homebuyers make. When you equip yourself with the right information, buying a pre-construction condo should be a smooth and fun process.