Is buying a presale a bad idea?

Today, I’m going to talk about presale condos, also known as preconstruction condos. If you’re interested in buying a presale condo, I’ll give you lots of good information and tips. So, when you are ready to buy, do not make any mistakes. 

Many buyers are looking at pre-construction homes as a more affordable option. You’re basically putting a deposit down to own the rights to your future home, and you get to delay things like mortgage payments until the home is completed. This is different from a resale home, which involves buying and selling existing properties.

Also, you usually don’t face the same potential issues and expenses that you would with resale homes. And new homes have mandatory 2-5-10 warranties for your peace of mind.

At the same time, presales also come with risks, including uncertainty around the finished product and the potential for delays or cancelling the project. And there’s the possibility that the market can dip, and you could lose money on your home.

With rising interest rates, there’s also the possibility that mortgage payments become unmanageable between the time you pre-buy your home and its completion.

Buying a presale home

The idea of buying a pre-construction build as an investment appears like an easy way to make money.

But you have to understand it's not that simple and you can’t do that anymore like before. As you know the government real estate law was changed. If you want to sell the preconstruction after completion, you must live there at least a year as primary residence or rent it out. This is called the new “Anti-Flipping Tax.”

Essentially, under the new tax law, anyone who sells a property which they owned for less than 12 months (specifically, 365 consecutive days) will be considered to have “flipped” the house and any profits from the deal will be taxed as business income.--

For people who have owned presale condos, I have seen a lot of the struggles some face as the closing date on their pre-build home nears.

I’d like to point out that if you’re purchasing a pre-build home, you need to consider things like if your income will support the mortgage. You also need to consider if you can cover maintenance costs and other personal expenses.

Build on your knowledge

Whether you’re buying a pre-construction build as your first home or are looking to purchase one as an investment property, you should consider the following things.

Be aware of your risks

When considering a pre-construction home, be aware that the developer could cancel the project or delay it, and you could have missed investment opportunities by having your money tied up in the build.

Will you be able to afford an increase in mortgage payments if rates rise? Pay particular attention to the current housing market.

Thoroughly go through a disclosure statement that the developer provides you. Presale contracts are typically drafted in a manner that protects the developer’s interests and not the interests of the purchaser.

Know the timing of your purchase

Pre-construction builds let you secure an asset while giving you time to build your capital to pay for additional payments and other expenses. Be sure to fully understand what will be required of you when the closing date comes, and how long you have until that date arrives.

Research the area and developer

Get to know the area where your pre-construction home is being developed. Consider infrastructure and other developments in the area. Look at some of the developers’ past projects. Were they completed on time and on budget?

Working with a knowledgeable Realtor

Having a knowledgeable Realtor work with you when looking for a pre-construction home is critical. Working with someone with knowledge of the area where your home will be, and who has knowledge of the developer, will save you time and headaches in the long run.


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