Pre-construction condos are an amazing investment opportunity (most of the time)!
In Toronto’s bustling market, it was almost a given that buying a pre-construction condo would lead to profits once built. But let’s address the elephant in the room: concerns about market saturation and delays have cast a bit of a shadow over pre-construction lately.
However, hear me out: converting real estate into a rental property, particularly a strategically chosen urban condo, can be an incredibly rewarding long-term investment. Imagine building equity and earning steady returns through passive income from tenants. And with a modest initial investment in a high-demand Toronto neighbourhood, pre-construction condos can be a brilliant move.
Think about it: you invest less but get more out of it. Compared to investments like RRSPs or stocks, real estate lets you leverage your funds for greater returns. The growth of your property is based on its total value, not just your invested amount. This means your 20% down payment is part of a property appreciating at its full 100% value. And thanks to low lending rates in Canada, you can borrow at a low cost and make income that surpasses your mortgage payments. The best part? Your rental income can cover your principle and monthly fees, letting your tenants essentially pay off your mortgage while you own the property.
You might think you need a huge savings to start, but that’s not true. Most real estate investments require a 15-20% down payment. For a $300,000 unit, this means a $60,000 deposit, which is a lot, but pre-construction projects have deposit schedules that spread this out over construction time, making it more manageable.
Plus, you can cover your monthly costs while building equity. In a building, most units have similar costs, and every owner aims to rent above that cost. For example, in a building I bought in 2008, I can rent units for $1,400-$1,600, while my carrying cost is about $1,100.
These condos are stable long-term investments. Unlike other options that offer immediate returns, real estate is about playing the long game. With consistent rental income unaffected by market fluctuations, your monthly income remains steady.
And it’s almost a hands-off investment. I look for the best projects that ensure passive income greater than your monthly costs. A new condo is easy to market and rent out without any need for repairs or touch-ups. Smaller units are also easier to rent, offering a turn-key business ready to go.
But, pre-construction isn’t for everyone. As an investment coach, I won’t say it’s always the best option. Every property and purchaser is unique, and it’s crucial to strategize based on your situation. Sometimes, it might be better to leave your money in a mutual fund or RRSP to build capital for a future investment. Pre-construction condos offer great potential for growing equity with a smaller investment, but tailoring a purchase to your specific needs is key to ensuring the best outcome.
